Legislature(2015 - 2016)BILL RAY CENTER 208

05/27/2016 09:00 AM House FINANCE

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09:07:00 AM Start
09:07:37 AM HB374
05:45:13 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call - Approx. 2:00 p.m. --
Moved CSHB 374(FIN) Out of Committee
-- Open Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 374                                                                                                            
     "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."                                                                                      
9:07:37 AM                                                                                                                    
Co-Chair Thompson discussed the agenda.                                                                                         
Representative  Wilson  referred  to  a  document  from  the                                                                    
[House]  Labor  and  Commerce  [Committee]  titled  "HB  374                                                                    
Reinsurance  Program;  Health  Insurance Waivers"  from  the                                                                    
Department of  Commerce, Community and  Economic Development                                                                    
(copy  on file).  She referred  to  page 2  of the  document                                                                    
related  to  consumer  impact.  She  detailed  the  document                                                                    
addressed  that  the  existing federal  reinsurance  program                                                                    
would  expire  in  the  current   year.  She  continued  the                                                                    
document  referred  to  a  2016 estimated  tax  of  $30  per                                                                    
member,  per  month on  individual  plans,  and an  $18  per                                                                    
member,  per month  charge for  individuals in  group plans.                                                                    
She  asked for  verification  that the  original bill  would                                                                    
have maintained  the tax; therefore,  no one would  pay more                                                                    
than they paid currently.                                                                                                       
LORI   WING-HEIER,   DIRECTOR,    DIVISION   OF   INSURANCE,                                                                    
DEPARTMENT OF  COMMERCE, COMMUNITY AND  ECONOMIC DEVELOPMENT                                                                    
(DCCED),  replied  in  the   affirmative.  She  confirmed  a                                                                    
reinsurance fee  had been  set in 2014,  2015, and  2016 for                                                                    
the federal government, which would  terminate at the end of                                                                    
the current year.  She elaborated there was also  a tax that                                                                    
would  be suspended  at the  end  of the  current year.  She                                                                    
relayed  the  state  did  not  know  if  the  tax  would  be                                                                    
reenacted at some point in  the future. She explained it was                                                                    
a percentage  - that  the tax  was equivalent  to $18  on an                                                                    
employee plan  or $30 on  an individual plan per  month. She                                                                    
clarified the  reinsurance was $2.25  per member,  per month                                                                    
and  the tax  was estimated  at  $18 per  member, per  month                                                                    
(approximately   $20   total).   With  the   knowledge   the                                                                    
reinsurance program was expiring,  the department was trying                                                                    
to back into  a number at $20 multiplied by  12 [months] and                                                                    
multiplied  by  the  224,000 in  an  insured  population  in                                                                    
Alaska, which resulted in a total of about $55 million.                                                                         
Ms. Wing-Heier furthered that  within the insured population                                                                    
there  was primary  and excess  or stop-loss  insurance. She                                                                    
detailed the  stop-loss insurance did not  contribute to the                                                                    
tax or  contributed at a  much lower rate because  they were                                                                    
paying at a percentage and  because their premiums were much                                                                    
less. She  explained that participating employers  (e.g. the                                                                    
State  of Alaska  or  another large  employer)  took a  much                                                                    
larger deductible, taking the  losses in-house, buying stop-                                                                    
loss insurance, and funding  losses internally. For example,                                                                    
instead  of paying  a $5  million premium,  an employer  was                                                                    
funding  a  $4 million  premium  and  only purchasing  a  $1                                                                    
million premium.  She continued the  tax was paid on  the $1                                                                    
million instead of $5 million.  She communicated that school                                                                    
districts and  other employers had  been "crying  foul" that                                                                    
they did not  pay 3 percent on the  portion they self-funded                                                                    
and they did  not budget for it. She  further explained that                                                                    
the employers specified  the entities were asked  to pay the                                                                    
$20 per person, per month "time out."                                                                                           
FRED  PARADY, DEPUTY  COMMISSIONER, DEPARTMENT  OF COMMERCE,                                                                    
COMMUNITY, AND  ECONOMIC DEVELOPMENT, interjected  that [the                                                                    
employers in the example specified] it was a new tax.                                                                           
Ms. Wing-Heier reiterated  it was a new tax  - the employers                                                                    
specified they had never paid the amount because they self-                                                                     
funded. The  employers also emphasized they  could not begin                                                                    
to pay  the amount  because they did  not have  the funding.                                                                    
She explained  Representative Kurt  Olson had come  out with                                                                    
the  committee substitute  (CS) to  HB 374,  which would  go                                                                    
with  the premium  tax. She  discussed that  related to  the                                                                    
fully  insured,  it was  right  to  say  the 3  percent  tax                                                                    
equated to  $18 and  everyone paid  the $2.25  including the                                                                    
plans  with  stop-loss.  However,  when  it  came  to  large                                                                    
employers that self-funded the majority  of the program (and                                                                    
with high  stop-loss), the percentage  was so low,  when the                                                                    
$20 per  person, per month  was used, employers such  as the                                                                    
Kenai  Peninsula School  District, the  North Slope  Borough                                                                    
School  District, and  others had  called  and sent  letters                                                                    
specifying the structure did not work.                                                                                          
9:13:11 AM                                                                                                                    
Representative Wilson  asked if the  amount was the  same as                                                                    
the 2.7 percent [tax] under discussion.                                                                                         
Ms.  Wing-Heier   answered  "that  amount  equated   to  $55                                                                    
million." She  explained that $55  million according  to the                                                                    
actuarial study would  impact the premium or  rates by about                                                                    
15 to 18 percent.                                                                                                               
Mr. Parady added that the 2.7 percent was the state tax.                                                                        
Ms. Wing-Heier  continued that  every [insurance]  policy in                                                                    
the  state (i.e.  life  and  health, workers'  compensation,                                                                    
auto, home,  and other) paid a  tax to the state,  which was                                                                    
most often 2.7  percent (there were some  exceptions such as                                                                    
title insurance, which paid 1  percent). The bill before the                                                                    
committee assumed  that the  2.7 percent  tax would  come in                                                                    
for the reinsurance program.                                                                                                    
Mr. Parady clarified "in this bill." Ms. Wing-Heier agreed.                                                                     
Representative Wilson  asked for  verification that  the 2.7                                                                    
percent  was currently  coming into  the General  Fund (GF).                                                                    
She asked  for verification  that the department  was asking                                                                    
to have  the 2.7 percent  designated to DCCED to  offset and                                                                    
reduce  premiums  for  everyone  (not  only  the  high  risk                                                                    
Ms. Wing-Heier answered  that the funds did  currently go to                                                                    
the General  Fund. She  deferred to  Mr. Parady  for further                                                                    
Mr. Parady  replied his best  understanding was the  tax was                                                                    
collected by the  Division of Insurance and  at the year-end                                                                    
it lapsed to the GF.                                                                                                            
Co-Chair  Thompson noted  that Mr.  Teal would  be available                                                                    
for questions.                                                                                                                  
Representative  Wilson  directed  her question  to  Co-Chair                                                                    
Thompson. She wondered  if the bill was  really only related                                                                    
to funding something  in the current year.  She reasoned the                                                                    
2.7 percent could  be designated to a particular  fund to do                                                                    
exactly what DCCED  was talking about versus  looking at $55                                                                    
million out of the GF.                                                                                                          
Co-Chair  Thompson  noted that  Mr.  Teal  would answer  the                                                                    
9:16:19 AM                                                                                                                    
Representative   Guttenberg   asked  about   the   statutory                                                                    
references.  He  referred to  Section  1  of the  bill  that                                                                    
addressed  funding  the  reinsurance program.  He  mentioned                                                                    
statutory  references  that  were  included.  He  asked  for                                                                    
detail on how the structure worked.                                                                                             
Ms. Wing-Heier referred to a statute book for an answer.                                                                        
Co-Chair Thompson  noted that Commissioner Hladick  was also                                                                    
9:17:34 AM                                                                                                                    
AT EASE                                                                                                                         
9:20:22 AM                                                                                                                    
Ms. Wing-Heier  answered that the  primary tax  collected by                                                                    
the  division was  under AS  21.09.210, which  was insurance                                                                    
tax.  In  FY   15  the  tax  had   brought  in  $55,941,000.                                                                    
Additionally,  the  department  had collected  $108,000  for                                                                    
unauthorized  insurance  premium  tax  under  AS  21.33.055;                                                                    
$38,000 for  independently procured  insurance tax  under AS                                                                    
21.33.061; $2,754,811  for surplus lines insurance  under AS                                                                    
21.44.180;  and  $274,847  for   title  insurance  under  AS                                                                    
21.66.110 for  a total of  $59,117,449 in premium tax  in FY                                                                    
15. She  noted the  total did not  include the  receipts and                                                                    
licensing fees collected by the division.                                                                                       
Representative   Guttenberg  asked   what  the   funds  were                                                                    
currently used  for. Ms. Wing-Heier  answered that  once the                                                                    
funds left the division, it no longer tracked them.                                                                             
Representative Guttenberg  surmised that before  leaving the                                                                    
division, the money was used to fund the division.                                                                              
Ms. Wing-Heier  answered in the negative.  She clarified the                                                                    
division   was  funded   separately.  She   elaborated  that                                                                    
insurance producers, agents,  brokers, adjusters, and finger                                                                    
printing funded  the division.  The division  collected fees                                                                    
for those  services, which were responsible  for funding the                                                                    
division's operations  (the fees were separate  from any tax                                                                    
collected by the division).                                                                                                     
9:22:49 AM                                                                                                                    
Co-Chair  Thompson   noted  that  the   Legislative  Finance                                                                    
Division would address a conceptual amendment.                                                                                  
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
discussed that  Co-Chair Thompson had  asked if there  was a                                                                    
way  to  show   the  amount  as  something   other  than  an                                                                    
expenditure  of  unrestricted  general funds  (UGF)  and  to                                                                    
straighten   out  the   fiscal   note.   In  response,   the                                                                    
Legislative Finance  Division had drafted an  amendment that                                                                    
would be included in a CS  later in the day. He explained it                                                                    
would  establish an  Alaska  Comprehensive Health  Insurance                                                                    
Association (ACHIA)  fund; rather than spending  UGF premium                                                                    
tax  revenue  directly  to  DCCED,  the  premiums  would  be                                                                    
deposited  into  a  fund, which  would  make  it  designated                                                                    
revenue  (very similar  to the  alcohol  and drug  treatment                                                                    
money). The state could then  specify the fund could be used                                                                    
to  make  appropriations to  DCCED  to  run the  reinsurance                                                                    
Mr. Teal clarified  the revenue that would go  into the fund                                                                    
was  from premium  taxes on  all insurance  lines, not  just                                                                    
health  insurance. He  added it  would not  include the  2.7                                                                    
percent  workers' compensation  fee that  was already  going                                                                    
into  a  workers'  safety fund.  He  explained  the  revenue                                                                    
included penalties  and interest  on late  fees (it  was not                                                                    
purely premiums)  and was net of  refunds, errors, etcetera.                                                                    
The fund  would be  modeled after the  alcohol fund  and the                                                                    
premium taxes  would be  reclassified as  designated general                                                                    
funds (DGF)  rather than  UGF. As the  bill was  written, it                                                                    
would spend UGF because the  premium taxes were UGF revenue.                                                                    
He detailed  the taxes  were UGF  revenue because  they were                                                                    
appropriated to DCCED, but lapsed into  the GF at the end of                                                                    
the year. The  alternative was to create a  fund calling the                                                                    
funds  designated   revenue,  which  would   reclassify  the                                                                    
revenue as  DGF (there would be  a loss of UGF  revenue). He                                                                    
continued there was  no change in the deficit -  in one case                                                                    
more UGF  was spent and  in the  other case in  creating the                                                                    
fund  there  was a  loss  of  an  equivalent amount  of  UGF                                                                    
revenue.  He explained  the deficit  would still  be exactly                                                                    
the same and "there is no free money here."                                                                                     
Mr. Teal  detailed the  advantages to  creating a  fund were                                                                    
that there was a lag, so  the amount of funds in the account                                                                    
were  known. There  would be  an  effective date  of FY  16,                                                                    
which  would put  the  premiums collected  in  2016 (due  to                                                                    
lapse  on  June  30)  into  the fund;  the  funds  would  be                                                                    
available  for  appropriation  in  FY 17,  which  meant  DGF                                                                    
premium  taxes would  be  spent  in FY  17.  A  loss of  UGF                                                                    
revenue   would  be   shown  in   FY  16   because  it   was                                                                    
reclassified.  Second,  the  current   bill  would  put  the                                                                    
expenditures ($55 million) in  the agency operations portion                                                                    
of the  budget by direct  appropriation and then a  grant to                                                                    
ACHIA, which  would inflate the DCCED  operating budget. The                                                                    
bill did not  run the money through DCCED; it  would go into                                                                    
a  fund under  a statewide  allocation and  would appear  in                                                                    
DCCED as DGF.  He reiterated there was no new  money, it was                                                                    
merely  a  question  of  how   things  were  classified.  He                                                                    
underscored that the  concept was not a  "black magic budget                                                                    
trick"  and it  would  operate  the exact  same  way as  the                                                                    
alcohol fund. He explained if  the legislature was concerned                                                                    
about  its FY  17 expenditure  level, the  way the  bill was                                                                    
drafted  UGF  expenditures  would  go  up  by  $55  million,                                                                    
whereas, if  the legislature implemented  the fund,  the UGF                                                                    
expenditures would  not change (UGF revenue  would simply be                                                                    
9:28:40 AM                                                                                                                    
Co-Chair Neuman  summarized his understanding of  Mr. Teal's                                                                    
statements.  He surmised  the state  was collecting  premium                                                                    
funds of  about $55 million,  which currently went  into the                                                                    
GF and  were used  to pay ACHIA.  He asked  for verification                                                                    
the proposal  would collect the  premium tax and  deposit it                                                                    
directly into  the ACHIA  fund. He believed  it was  not new                                                                    
money coming  out of the  GF and  the method would  be clear                                                                    
for tracking and budgetary purposes.                                                                                            
Mr.  Teal  answered in  the  affirmative.  He explained  the                                                                    
method would help  in a way because (like  with alcohol) the                                                                    
legislature would  be spending FY 16  money in FY 17  and it                                                                    
would  have a  fairly good  idea about  the amount  of money                                                                    
available,    which    would    avoid    over-appropriation.                                                                    
Additionally, as the  years go by, the  legislature may find                                                                    
there was more  money in the fund than  it had appropriated,                                                                    
which would  enable the legislature to  increase or decrease                                                                    
the appropriation.  He stated it  was a matter  of providing                                                                    
affordable  healthcare to  individuals who  would have  very                                                                    
high  premiums  and  it  was  a way  to  avoid  premium  tax                                                                    
increases  for  everyone. He  explained  it  would be  using                                                                    
state money to make healthcare more affordable.                                                                                 
Co-Chair  Neuman  asked  for verification  the  state  would                                                                    
maintain   its   ability   to  increase   premiums   through                                                                    
regulation  to  help cover  costs  if  the costs  for  ACHIA                                                                    
Mr. Teal answered in the  affirmative. He elaborated that if                                                                    
the state  raised premiums it would  increase premium taxes,                                                                    
which  would  go to  the  fund  and  could  be used  to  pay                                                                    
healthcare costs.                                                                                                               
Co-Chair  Neuman   remarked  the   method  was   more  self-                                                                    
regulating. Mr. Teal agreed.                                                                                                    
9:30:48 AM                                                                                                                    
Representative  Gattis  asked  why the  taxes  on  insurance                                                                    
premiums  had  been  instituted  in  the  first  place.  She                                                                    
elaborated that the  money may not be new, but  it was a new                                                                    
"spend." She  detailed the money  had been deposited  in the                                                                    
GF in  the past for  GF purposes.  She had spoken  with some                                                                    
insurance  companies  that  did   not  know  why  they  were                                                                    
collecting the funds.                                                                                                           
Mr.  Teal answered  by comparing  the taxes  to Division  of                                                                    
Motor  Vehicles fees.  He detailed  the state  charged money                                                                    
for license  plates, which exceeded  the cost of  making and                                                                    
issuing  the plates.  He  explained the  tax  was a  revenue                                                                    
Representative Gattis stated that it  was not new money, but                                                                    
surmised it was clearly a  new spend. Mr. Teal answered that                                                                    
it was a  loss of $55 million in GF  revenue, which could be                                                                    
characterized  as a  new spend  or a  loss in  revenue -  it                                                                    
amounted to the same thing.                                                                                                     
Vice-Chair  Saddler understood  that the  insurance industry                                                                    
model passed  on the risk  to ever-increasing pools;  if one                                                                    
insurer  did  not believe  they  could  cover all  of  their                                                                    
claims, they  purchased reinsurance insurance.  He furthered                                                                    
the  risk was  passed along  until  someone had  to pay.  He                                                                    
discussed  that currently  Premera  had the  risk pool,  had                                                                    
determined the  cost of fulfilling  claims was more  than it                                                                    
was  collecting, and  was  trying  to pass  on  its risk  to                                                                    
somebody.  He  surmised  the  state   was  not  buying  more                                                                    
insurance, but it was merely  appropriating money to pay for                                                                    
it. He believed  the state was the last payer.  He asked for                                                                    
the accuracy of his statements.                                                                                                 
Mr.  Teal believed  it  was accurate,  but  deferred to  Ms.                                                                    
Wing-Heier   for  detail.   He   spoke   to  insurance   and                                                                    
reinsurance in  simpler terms and explained  subsidizing the                                                                    
cost with  state money was making  healthcare affordable. He                                                                    
continued  that  otherwise,   premiums  would  increase  for                                                                    
everyone because  premiums could  not be increased  for very                                                                    
high  risk people.  He  did not  know it  was  even fair  to                                                                    
classify them as high risk  people. He furthered many of the                                                                    
individuals  had known  conditions and  expensive healthcare                                                                    
cost  where  no  one  would insure  them.  For  example,  he                                                                    
questioned  what   an  insurer  would  have   to  charge  an                                                                    
individual for healthcare premiums if  it was known a person                                                                    
had  a  medical  condition  that   would  cost  $250,000  or                                                                    
$300,000 per  year. He explained  the cost would  be totally                                                                    
unaffordable.  He  detailed   that  normally  premiums  were                                                                    
spread to everyone;  the bill provided a way to  pay some of                                                                    
the medical costs  out of state funds  instead of increasing                                                                    
all  Alaskan's  premium  costs.  He  saw  it  as  affordable                                                                    
healthcare as opposed  to an insurance premium.  He added it                                                                    
was not a risk, it was a known expense.                                                                                         
9:35:00 AM                                                                                                                    
Ms. Wing-Heier  answered that reinsurance was  common in the                                                                    
insurance  world for  health,  workers' compensation,  auto,                                                                    
and   other.  She   specified  insurance   companies  bought                                                                    
reinsurance in  great volumes. For example,  Alaska National                                                                    
and  American  International purchased  reinsurance  because                                                                    
they  only  wanted   to  take  a  certain   amount  of  loss                                                                    
themselves. She elaborated reinsurance  was insurance for an                                                                    
insurance company because they could  only afford to take so                                                                    
much  risk themselves,  particularly for  catastrophic loss.                                                                    
She explained  an insurance  company may  take the  first $1                                                                    
billion or $100 million of  a catastrophic loss and it would                                                                    
then  submit a  claim  to its  reinsurer.  She detailed  the                                                                    
claim may go  to the first layer of  the reinsurance program                                                                    
and  then to  the second  layer depending  on the  loss. The                                                                    
program  was attempting  to  reinsure  for the  catastrophic                                                                    
claims  of   the  individual  market.  She   reiterated  the                                                                    
practice  was not  uncommon in  the industry  - she  did not                                                                    
know of  many insurance companies  that took every  loss net                                                                    
to their bottom line.                                                                                                           
Vice-Chair  Saddler stated  it was  one of  the reasons  the                                                                    
insurance industry  was one of  the first industries  to use                                                                    
computers to calculate "this kind  of stuff." He referred to                                                                    
Ms.   Wing-Heier's   testimony   related   to   self-funding                                                                    
insurance pools (e.g. school districts  and others) that may                                                                    
self-insure  for a  portion of  their  risk and  then go  to                                                                    
reinsurance  or  different  insurance coverage  for  another                                                                    
portion, which  was the source  of the inequity  of applying                                                                    
the premium  tax. He  noted the  school districts  had their                                                                    
own  funds  to  self-insure  from. He  asked  if  the  money                                                                    
originated from  the State  of Alaska  paying an  amount per                                                                    
employee. He  stated that contracts were  usually negotiated                                                                    
and included  health insurance costs. He  wondered about the                                                                    
source of funds  school districts used to  provide the self-                                                                    
insurance coverage.                                                                                                             
Ms.  Wing-Heier replied  that  she did  not  know about  the                                                                    
school district funding. She deferred to Mr. Parady.                                                                            
Mr.  Parady  answered that  he  had  been the  former  chief                                                                    
operating  officer   of  the  North  Slope   Borough  School                                                                    
District.  He detailed  that the  district had  self-insured                                                                    
its 500  employees and  2,000 covered  lives for  $7 million                                                                    
and  had purchased  insurance to  cover losses  exceeding $7                                                                    
million or individual claims  exceeding $150,000. The source                                                                    
of  the funds  was  school district  operating funds,  which                                                                    
came from the foundation formula.                                                                                               
Vice-Chair Saddler asked for verification  the state paid to                                                                    
help populate  insurance funds used  by school  districts to                                                                    
provide  self-insurance for  health  insurance. He  surmised                                                                    
the goal was  to find a way to equitably  share the costs of                                                                    
the  high  risk  insurance  pool. He  construed  the  school                                                                    
districts  and others  were objecting  to the  imposition of                                                                    
additional premium  taxes; however, the state  was currently                                                                    
paying most of the cost already.                                                                                                
9:38:52 AM                                                                                                                    
Mr. Parady  noted that the  school district was  a political                                                                    
subdivision  of the  state; therefore,  all of  its expenses                                                                    
were essentially the state's,  absent some federal grants or                                                                    
private  fundraising.   Secondly,  one  of   the  district's                                                                    
objections would be timing and  the fact that when the state                                                                    
was  looking at  the $20  per  person, per  month option  it                                                                    
included 256,000  insured lives, 150,000 of  the individuals                                                                    
were carrying  stop-loss insurance. He explained  it was not                                                                    
offset by an  expiring federal tax; it was a  form a new tax                                                                    
that hit districts in a way they were not budgeting for.                                                                        
Vice-Chair Saddler asked Mr. Parady  if the premium tax went                                                                    
through,  whether the  school districts  would ask  for more                                                                    
money to cover  the cost. Mr. Parady  affirmed the districts                                                                    
would look for help with the money.                                                                                             
Representative    Gara   believed    the   presenters    had                                                                    
sufficiently  demonstrated  why   something  like  the  bill                                                                    
needed to  pass. He  did not want  to increase  the premiums                                                                    
for other policy  holders and there was a  certain amount of                                                                    
compassion reflected  in helping people with  severe medical                                                                    
conditions. He  asked if  the $55  million generated  by the                                                                    
premium tax that  went into the insurance fund  was used for                                                                    
anything  else  at present.  He  wondered  whether the  bill                                                                    
would take money away from  other things the legislature was                                                                    
presently  funding, meaning  the legislature  would have  to                                                                    
locate alternative funding sources for those items.                                                                             
Mr. Teal  answered that the  premium tax receipts  went into                                                                    
the  GF.   Once  the   money  went  into   the  GF   it  was                                                                    
indistinguishable  from royalty  proceeds  or  any other  GF                                                                    
receipts. He  detailed that the  money was  definitely being                                                                    
spent on  something at  present, but  he could  not identify                                                                    
specifically  what  that  was.  The  bill  would  reduce  GF                                                                    
revenue  by  $55  million,  leaving the  state  with  a  $55                                                                    
million deficit. He explained  the scenario would be exactly                                                                    
the  same  as  if  the  legislature used  UGF  to  make  the                                                                    
Representative Gara  referred to  an earlier  statement that                                                                    
the  department   could  change  the  premium   tax  through                                                                    
regulation  if  there was  a  shortfall  in the  future.  He                                                                    
believed  the  tax   was  set  by  statute.   He  asked  for                                                                    
Ms. Wing-Heier answered that it was set by statute.                                                                             
Representative Gara  asked for verification the  premium tax                                                                    
could not be  changed unless it was changed  in statute. Ms.                                                                    
Wing-Heier replied in the affirmative.                                                                                          
9:42:41 AM                                                                                                                    
Representative Guttenberg  did not  know what  the actuarial                                                                    
chart indicated about the specific  group of individuals and                                                                    
rising  healthcare  costs  or   how  large  the  group  was.                                                                    
Additionally, he did not know  whether the group was growing                                                                    
disproportionately to  the rest of the  population. He spoke                                                                    
to  the rest  of the  insured  population and  asked if  the                                                                    
taxes were based  on percentages or a flat  fee. He wondered                                                                    
if  the percentage  or flat  fee was  able to  keep up  with                                                                    
rising costs. He asked whether  the money that would go into                                                                    
the future designated fund rising  as rates rose. He did not                                                                    
image a flat fee would  keep up with rising healthcare costs                                                                    
of  the specific  population;  however,  a percentage  would                                                                    
keep up  more proportionately. He  asked if there was  a gap                                                                    
between the two lines.                                                                                                          
Ms.  Wing-Heier   believed  Representative   Guttenberg  was                                                                    
asking  whether the  $55 million  would be  adequate in  the                                                                    
future or should  the amount be a certain  percentage of the                                                                    
claims (e.g.  10 or  20 percent). She  did not  know whether                                                                    
the answer was known, but  the receipts or revenue collected                                                                    
by the  division was limited.  Only so much  insurance would                                                                    
be sold  in the state and  with a 2.7 percent  tax a limited                                                                    
amount would  be collected to  put towards the  program. The                                                                    
bill intended  that the legislature may  appropriate because                                                                    
the ACA [Affordable Care Act]  was in its infancy. Section 3                                                                    
of  the  bill  also   proposed  an  innovation  waiver.  She                                                                    
expounded that there may be  changes coming from the federal                                                                    
Congressional  delegation that  may impact  how the  program                                                                    
looked in  two or  three years, which  could mean  the state                                                                    
may  not  need  $55  million. She  believed  the  term  "may                                                                    
appropriate" would  depend on how  they looked at  the issue                                                                    
in 2019  and 2020 in  terms of  whether $55 million  was the                                                                    
correct number. She  detailed the division did  not know how                                                                    
successful the innovation  waiver would be or  the impact it                                                                    
would  have on  Alaska,  but  it did  want  to consider  the                                                                    
option to see  how it would impact the  individual and small                                                                    
group  markets in  the state.  The division  also wanted  to                                                                    
work with  the Congressional delegation. She  reiterated the                                                                    
ACA had  only been implemented  three years earlier  and had                                                                    
been passed as  a "one size fits all"  program. The division                                                                    
believed the  ACA would  change over  time. She  relayed the                                                                    
division had received  a notice the previous  day that Texas                                                                    
received a rate filing from  Blue Cross Blue Shield for 58.6                                                                    
percent. She  underscored the rate was  not sustainable even                                                                    
for Texas.  She stressed  that things  would have  to change                                                                    
and  as  things  changed  the division  hoped  it  was  "not                                                                    
sitting  here  asking you  for,  just  saying, $75  million.                                                                    
That's  not the  intent."  She concluded  the bill  language                                                                    
used the term "may appropriate"  and the issue would have to                                                                    
be revisited the next year.                                                                                                     
Representative Guttenberg  spoke to  his prior  question and                                                                    
asked what portion of the funds  were flat fees and how many                                                                    
were  percentages of  [insurance]  policies. Ms.  Wing-Heier                                                                    
answered that  the funds were  all percentages of  one point                                                                    
or another.                                                                                                                     
9:47:09 AM                                                                                                                    
Co-Chair Thompson OPENED public testimony.                                                                                      
DAVID MORGAN,  SELF, ANCHORAGE (via  teleconference), shared                                                                    
that  he was  an economist  and had  30 years  of experience                                                                    
working in the healthcare field.  He testified that it was a                                                                    
pattern that had  been seen throughout the  whole process of                                                                    
the ACA,  which had  originally promised  to save  money and                                                                    
contain  costs.  However,  he   emphasized  that  costs  had                                                                    
exploded in  both large and small  states; primarily because                                                                    
efforts  to  contain  costs  had   not  been  made.  He  was                                                                    
concerned  that  the  old  pool  had  certain  managed  care                                                                    
processes that  helped contain costs of  high cost patients.                                                                    
He  detailed  that to  get  into  the  program there  was  a                                                                    
process to make  sure that everyone who was  supposed to pay                                                                    
(i.e.  insurance,   tribes,  and  others  that   had  health                                                                    
benefits) paid  first and  the pool  paid last.  Second, the                                                                    
act  had  looked  at using  Medicare  centers  equality  and                                                                    
negotiated certain prices and  purchase of certain services.                                                                    
It had  tried to shift  patients to a higher  volume, bigger                                                                    
quality scenario  in order  to save money  for the  pool. He                                                                    
observed that  in 2016  Alaska only  had the  second highest                                                                    
rate increases on  average; Minnesota was at  47 percent and                                                                    
Alaska was at 39.1 percent.  He relayed that virtually every                                                                    
state  had gigantic  increases.  He  understood the  process                                                                    
that had  been set  up and the  information being  used were                                                                    
changing greatly.  He remarked  that in six  months Medicaid                                                                    
expansion went from a savings  of $32 million for four years                                                                    
to  a cost  of $56  million. He  stated he  agreed with  the                                                                    
director of the Division of  Insurance that the state was in                                                                    
a debt spiral.                                                                                                                  
9:51:16 AM                                                                                                                    
JEFF  RANF,  ALASKA   ASSOCIATION  OF  HEALTH  UNDERWRITERS,                                                                    
ANCHORAGE (via teleconference), testified  in support of the                                                                    
legislation. He  explained that the  association represented                                                                    
over  100 licensed  insurance agents  throughout Alaska.  He                                                                    
detailed   the   association's    members   consulted   with                                                                    
individual  Alaskans   and  Alaskan  employers  on   how  to                                                                    
purchase,  administer, and  utilize  their health  insurance                                                                    
coverage. He provided further  detail about the association.                                                                    
He  shared   the  organization  had  seen   first-hand  what                                                                    
residents were  experiencing as  they attempted  to purchase                                                                    
insurance  to  help  pay  for  their  medical  expenses.  He                                                                    
stressed that  the situation was very  serious. He furthered                                                                    
that  health  insurance had  gone  from  being expensive  to                                                                    
potentially  unavailable to  a large  group of  Alaskans. He                                                                    
discussed the bill would amend  statute related to ACHIA. He                                                                    
communicated  that  Alaskans  had not  heard  a  significant                                                                    
amount about  ACHIA because ACA  was supposed to  have dealt                                                                    
with  the issue;  therefore, the  focus had  been on  ACA in                                                                    
Alaska. However, ACA  had not worked. The  bill would enable                                                                    
the state to put ACHIA back  to work, which he supported. He                                                                    
underscored  that  doing nothing  put  many  more people  at                                                                    
risk.  The  association's  concern was  that  erosion  could                                                                    
start to occur in the  group market if the individual market                                                                    
was  not  stabilized. He  relayed  it  would become  a  more                                                                    
widespread and  complicated problem  to solve. He  asked the                                                                    
committee to support the bill.                                                                                                  
SHEELA TALLMAN,  PREMERA BLUE CROSS  BLUE SHIELD  OF ALASKA,                                                                    
spoke  in  support  of  the legislation.  She  read  from  a                                                                    
prepared statement:                                                                                                             
     Premera has  operated in Alaska since  before statehood                                                                    
     in 1952 and provides  coverage to over 110,000 Alaskans                                                                    
     in all  lines of business including  the individual and                                                                    
     family  policy holders,  small group,  large group,  as                                                                    
     well as  providing services  to the  larger self-funded                                                                    
     employers   in  the   state.   The  individual   health                                                                    
     insurance market was  in crisis. I would  like to start                                                                    
     by briefly describing what has  got us here, explaining                                                                    
     the impacts to the  health insurance industry, and most                                                                    
     importantly  what  Alaskan   residents  are  facing  in                                                                    
     trying to buy individual coverage.                                                                                         
     With  health reform  in 2014  the major  change to  the                                                                    
     insurance   market   was   guaranteed  issue   to   all                                                                    
     individuals  without  preexisting condition  exclusions                                                                    
     and  this  provided  access to  insurance  for  several                                                                    
     thousands of  individuals which has been  a good thing.                                                                    
     Premera  and   the  other  insurers   priced  products,                                                                    
     estimating  the  impact   of  an  uninsured  purchasing                                                                    
     coverage   for   the   first   time.   However,   we've                                                                    
     experienced a significant influx  of new enrollees with                                                                    
     very  high medical  costs. Many  leaving the  high risk                                                                    
     pool, ACHIA, which  has shrunk by half  and the federal                                                                    
     preexisting condition pool.  Premera lost approximately                                                                    
     $13 million in the individual  market in 2014. For 2015                                                                    
     and 2016,  Premera had approximately 37  percent and 39                                                                    
     percent  average  rate  increases  for  the  individual                                                                    
     metallic  plans,  but  the claims  continue  to  exceed                                                                    
     premiums.  To break  even in  2015  Premera would  have                                                                    
     needed a 70 percent rate increase.                                                                                         
     To  say  it  differently,   Premera  is  taking  in  on                                                                    
     average,  $713 in  premium per  member, per  month, but                                                                    
     paying   claims  at   $919  per   member,  per   month,                                                                    
     demonstrating  the  very  high  claims  costs  in  this                                                                    
     individual  pool. In  a very  small  sized market  like                                                                    
     Alaska there  was simply not enough  healthy individual                                                                    
     purchasers to  offset the costs of  enrollees with very                                                                    
     high  claims costs.  Today, Alaska's  average benchmark                                                                    
     plan premium  in the individual  market is  the highest                                                                    
     in  the  country  at  over $700  per  month.  The  next                                                                    
     highest  state  is $468  per  month.  So while  states,                                                                    
     you've  heard, are  experiencing  similar increases  or                                                                    
     even higher  percentage rate increases, the  impacts in                                                                    
     Alaska  are  more  than double  since  the  premium  is                                                                    
     already so high. While subsidies  will help many, there                                                                    
     are still  over 1,200  individuals that do  not qualify                                                                    
     for any subsidies  and are picking up  the full payment                                                                    
     of that premium.                                                                                                           
     We're  very concerned  that premiums  will continue  to                                                                    
     skyrocket,  due to  the small  size  of the  individual                                                                    
     pool and with  fewer people to spread  the risk across,                                                                    
     the small  number of individuals with  these conditions                                                                    
     are  destabilizing  the  pool, which  is  resulting  in                                                                    
     these premium  increases. To give you  an example, just                                                                    
     for the first  half of 2015 we had over  $45 million in                                                                    
     claims,  $11  million  of those  claims  came  from  47                                                                    
     One solution  is an approach other  insurers have taken                                                                    
     already,  which  is  simply   to  exit  the  individual                                                                    
     market. However, we've been  working, Premera and Moda,                                                                    
     have been working collaboratively  with the Division of                                                                    
     Insurance  to come  up with  a  sustainable option  for                                                                    
     Alaskans,  which  is   the  reinsurance  program  we've                                                                    
     discussed,  administered by  ACHIA. That  program would                                                                    
     cover  or reinsure  the claims  costs for  some of  the                                                                    
     highest cost  medical conditions.  These are  the long-                                                                    
     term,  chronic conditions  such as  kidney disease  and                                                                    
     heart failure that are impacting  the pool. The program                                                                    
     would   help  mitigate   premium   increases  for   all                                                                    
     individual  policy  holders,  but  also  stabilize  the                                                                    
     market,   which    could   potentially    attract   new                                                                    
     competitors  into this  market. It  would also  provide                                                                    
     financial certainty for  customers, knowing that health                                                                    
     insurance  will continue  to be  available  to them  in                                                                    
     their time of need.                                                                                                        
     We  also  support  the innovation  waiver.  We  support                                                                    
     flexibility  at  the  state   level  to  help  Alaskans                                                                    
     maintain  the  coverage  they've   had  and  to  tailor                                                                    
     reforms to meet the unique  needs of the Alaska market.                                                                    
     The waiver would allow the state to explore longer-                                                                        
     term positions  and policies to  help address  the very                                                                    
     high cost of care in the state.                                                                                            
     What Alaska needs is immediate relief from these year-                                                                     
     over-year  premium increases  and House  Bill 374  will                                                                    
     help  to mitigate  these swings  and on  behalf of  the                                                                    
     23,000 individual  policy holders in the  state, we ask                                                                    
     for your support.                                                                                                          
9:58:49 AM                                                                                                                    
Co-Chair Neuman  thanked Ms. Tallman  for coming  to address                                                                    
the committee  in person. He  asked how the  committee could                                                                    
be assured that  the insurance companies would  pass the $55                                                                    
million to the consumers.                                                                                                       
Ms. Tallman answered  that the intent of the  program was to                                                                    
reduce the  rate of  the premium  increase. She  detailed if                                                                    
there was a reinsurance program  - much like how the federal                                                                    
reinsurance program had  worked - it would  be factored into                                                                    
the  rate filings  the company  would be  submitting to  the                                                                    
Division of Insurance for review.                                                                                               
Representative Munoz  asked about the  individuals receiving                                                                    
insurance through  federal subsidized  plans. She  asked how                                                                    
the subsidies were being funded.                                                                                                
Ms. Tallman  answered that the entire  pool under discussion                                                                    
was individuals purchasing coverage  in the federal exchange                                                                    
or outside  of the exchange;  it was  all one pool  for each                                                                    
insurer.  Federal subsidies  through the  ACA were  paid for                                                                    
under  other revenues  that went  to the  federal government                                                                    
and  the ACA  (e.g. insurer  tax, penalties  for individuals                                                                    
without insurance, and other revenue sources in the ACA).                                                                       
Ms.   Wing-Heier  elaborated   that   while  a   significant                                                                    
population received  premium tax  credit, it were  not equal                                                                    
to all  constituents. She detailed  it was based  on income.                                                                    
Approximately 70  percent probably  received a subsidy  of 1                                                                    
percent or another,  but it was not equal to  every member -                                                                    
everyone did not  get 90 percent of their  premium paid. For                                                                    
example, a  family of four  with a $1,000 per  month premium                                                                    
who  received   a  50  percent   tax  credit,   would  still                                                                    
responsible  for a  $2,000 payment.  She  reiterated it  was                                                                    
based on income  and it changed depending on  how a member's                                                                    
income varied  within a year.  She explained the  system was                                                                    
complicated   and   the   division  tried   to   work   with                                                                    
constituents. She  furthered a person learned  the amount of                                                                    
their premium  tax credit when  they filed their  taxes with                                                                    
the Internal Revenue Service (IRS).                                                                                             
Representative Munoz asked whether  some of the 23,000 under                                                                    
discussion  received some  subsidy,  while  others did  not.                                                                    
Alternatively,  she wondered  if  the  individuals were  all                                                                    
Ms.  Wing-Heier  estimated  that  about 70  percent  of  the                                                                    
23,000 individuals  were receiving a subsidy.  She estimated                                                                    
that  about half  (or fewer)  of the  70 percent  received a                                                                    
full  subsidy. She  reiterated her  previous testimony  that                                                                    
the  credit  varied  by  income.  One  of  the  reasons  the                                                                    
division  supported the  innovation waiver  was that  it had                                                                    
the ability  "to soften  the cliffs."  She detailed  that in                                                                    
some  of the  income levels,  if  a person  earned one  cent                                                                    
more, their subsidy  could change or go  away. She explained                                                                    
it was trued up by the  IRS, not by the Centers for Medicare                                                                    
and  Medicaid Services  (CMS) or  the  state. She  continued                                                                    
people were more than surprised  when they went to pay their                                                                    
taxes  and  discovered  their subsidy  had  been  calculated                                                                    
incorrectly and they ended up  owing back their subsidy. She                                                                    
stressed the  ACA was  in its infancy  and had  created some                                                                    
problems  for many  constituents in  the calculation  of the                                                                    
10:03:34 AM                                                                                                                   
Vice-Chair  Saddler   referred  to   background  information                                                                    
provided  by   Ms.  Tallman   that  some   health  insurance                                                                    
companies  were  responding  to  the  high  claim  costs  by                                                                    
limiting their  coverage in specific  sections of  the state                                                                    
or  the entire  state  (i.e. Eastern  Washington versus  the                                                                    
whole state).  He asked if Premera  was considering limiting                                                                    
its scope of coverage in  portions of Alaska or all together                                                                    
and if so, he wondered what the decision point was.                                                                             
Ms. Tallman answered that currently  the company was working                                                                    
on its  rate filing and  was obtaining the claims  data from                                                                    
Moda, which would  be used in the  rate development process.                                                                    
All  of the  factors were  under consideration.  The company                                                                    
was  committed  to  the  individual market,  but  it  was  a                                                                    
tenuous  market.  She added  that  each  state had  its  own                                                                    
market and was evaluated on its own.                                                                                            
Vice-Chair  Saddler  believed  the  calendar  for  the  rate                                                                    
filing  was  in  approximately   six  weeks.  He  asked  for                                                                    
verification  that  a  decision  would be  made  by  Premera                                                                    
within six weeks to continue as  is or to scale back in part                                                                    
or in total.                                                                                                                    
Ms. Tallman answered in the affirmative.                                                                                        
Vice-Chair  Saddler  asked  if   Ms.  Tallman  believed  the                                                                    
proposed  funding  mechanism  would be  sufficient  for  the                                                                    
short-term and long-term.                                                                                                       
Co-Chair  Thompson  believed  the question  pertained  to  a                                                                    
corporate decision.                                                                                                             
Ms. Tallman answered  that based on the  analysis looking at                                                                    
the   markets,  the   $55  million   would  have   a  fairly                                                                    
significant impact on individual  premiums. She detailed the                                                                    
question could  only be answered for  year-one. She believed                                                                    
a  reinsurance  program  would  help  mitigate  the  premium                                                                    
increases and  the rates. She  thought the impacts  would be                                                                    
what  happened over  time  to  the pool  if  there were  new                                                                    
competitors coming in. She reiterated  the $55 million would                                                                    
have a  significant impact and  would potentially  bring the                                                                    
rate of the increase to the  20 to 25 percent range that had                                                                    
been mentioned the previous day.                                                                                                
Vice-Chair Saddler  asked about  any experience  Ms. Tallman                                                                    
had with the 1332 innovation  waivers under ACA. He asked if                                                                    
it would be a good move for the state.                                                                                          
Ms.  Tallman  answered  that Premera  did  not  have  direct                                                                    
experience with  the 1332 waiver.  She explained  the waiver                                                                    
was still  in the very  initial stages  and it had  not been                                                                    
formally  explored by  the State  of  Washington. Given  the                                                                    
unique  nature  of  the insurance  market  and  the  overall                                                                    
Alaskan market  for insurance  it would  be a  very positive                                                                    
way to  look at  longer-term solutions  to address  the high                                                                    
cost of healthcare in Alaska.                                                                                                   
10:07:06 AM                                                                                                                   
Representative   Gara  referred   to   a   reference  to   a                                                                    
disappearing federal  tax that  may be  causing some  of the                                                                    
problem. He asked  if it was worth $55  million. He wondered                                                                    
if the tax was ending for  certain. He asked if other states                                                                    
were erupting  over the issue  because they were  facing the                                                                    
same problem as Alaska.                                                                                                         
Ms. Wing-Heier answered that the  tax had been suspended for                                                                    
2017  and the  division  did not  know  whether the  federal                                                                    
government  would  reenact it  at  some  point or  not;  the                                                                    
federal  government had  not committed  one way  or another.                                                                    
She explained  the reinsurance had  been eliminated  and had                                                                    
sunset; to  reinstate the  reinsurance it  would have  to be                                                                    
passed in  federal legislation. She reiterated  that the tax                                                                    
had merely been suspended.                                                                                                      
Representative Gara  asked if it  was the origin of  the $55                                                                    
million new problem.                                                                                                            
Ms.  Wing-Heier  replied  in  the  negative.  She  explained                                                                    
Alaskans were  paying the  3 percent tax  and the  $2.25 per                                                                    
member per month fee. The goal  was to consider what the net                                                                    
impact would  be if both  the 3  percent and the  $2.25 went                                                                    
away. She expounded  if they took the net impact  and put it                                                                    
into a  state program so  there was no additional  cost. She                                                                    
continued the money had previously  been paid to the federal                                                                    
government and  would now  be paid to  the state,  which was                                                                    
how the division had come up  with a rough number at $20 per                                                                    
person,  per  month. The  division  did  not realize  the  3                                                                    
percent was  not being paid  at the extent to  the stop-loss                                                                    
carriers, which was an error in its calculation.                                                                                
Co-Chair  Thompson remarked  that  the  committee was  still                                                                    
hearing public testimony.                                                                                                       
Representative  Gara   clarified  that  he  had   heard  the                                                                    
question  earlier  but  had  not   received  an  amount.  He                                                                    
referred to the $55 million.                                                                                                    
Mr.  Parady  answered  that  it was  not  $55  million.  The                                                                    
department  had arrived  at $55  million by  multiplying $20                                                                    
per  month for  236,000  insured  individuals. He  clarified                                                                    
that only  150,000 of the  total were stop-loss and  did not                                                                    
pay the  tax. At best, the  amount was one-third of  the $55                                                                    
Representative  Gara  stated that  a  number  of people  who                                                                    
qualified for  ACHIA probably qualified for  social security                                                                    
disability insurance  also. He noted that  Medicare was like                                                                    
an  exclusive insurance  program.  He wondered  if a  person                                                                    
could   qualify  for   social  security   disability  health                                                                    
insurance and ACHIA could pay for any remaining costs.                                                                          
10:10:48 AM                                                                                                                   
Ms.  Tallman answered  that it  was a  complex question  and                                                                    
issue. She believed to the  benefit of individuals who would                                                                    
qualify for  both programs, they  should certainly  have the                                                                    
ability to  tap into the  program. She was unsure  given the                                                                    
complexity of the interplay with the federal program.                                                                           
Representative Kawasaki  asked if  Premera also  operated in                                                                    
other  small  markets  with very  few  insurers  across  the                                                                    
United States.                                                                                                                  
Ms. Tallman answered  that Premera operated in  the State of                                                                    
Washington. Additionally,  it currently operated  in Oregon,                                                                    
but would be  leaving that market in 2017.  Those states had                                                                    
a number  of other competitors  in the individual  and group                                                                    
Representative Kawasaki stated it  looked like there were 11                                                                    
in Washington and  11 in Oregon. He observed  that the rates                                                                    
in Washington appeared to have  dropped from 2015 to 2016 by                                                                    
4  percent.   He  asked  if   Premera  would   anticipate  a                                                                    
competitor coming into the market  if ACHIA took the highest                                                                    
risk pool out of the equation.                                                                                                  
Ms.  Tallman would  anticipate that  it  would provide  some                                                                    
stability  to the  market and  would be  more attractive  to                                                                    
competitors. She  detailed that a program  to help stabilize                                                                    
the  market  meant  a  company   would  not  be  faced  with                                                                    
significant  swings  year-over-year.  The program  would  be                                                                    
available to any insurer and  she believed it would make the                                                                    
market more attractive for others.                                                                                              
Representative  Wilson  asked  if  any  other  state  had  a                                                                    
program like Alaska's ACHIA that  helped to compensate for a                                                                    
specific group.                                                                                                                 
Ms. Tallman answered that the  high risk pool, prior to ACA,                                                                    
had been  in effect in  a number  of other states.  The goal                                                                    
with the  reinsurance program was  to utilize the  high risk                                                                    
pool and  to do a  similar thing to  what it had  been doing                                                                    
before  a guaranteed  issue. She  detailed  that Oregon  was                                                                    
implementing   what   had   previously  been   a   temporary                                                                    
reinsurance program.  She knew  that other states  were very                                                                    
interested in  the program  under discussion.  She specified                                                                    
that Premera  had conversations with other  Blue Cross plans                                                                    
in Arizona,  Illinois, and Texas,  who were  very interested                                                                    
to  see how  the  program  would work  and  if  it could  be                                                                    
applied in their states.                                                                                                        
10:13:57 AM                                                                                                                   
JENNIFER  JOLLIFFE,  SELF, ANCHORAGE  (via  teleconference),                                                                    
shared that she is a  small business owner in Anchorage. She                                                                    
was a  large fan of  having health insurance. She  stated if                                                                    
insurance  rates continued  to  increase at  the same  level                                                                    
they had in the past two  years, her annual premium for 2017                                                                    
could  easily  be  $16,800 with  a  $6,500  deductible.  She                                                                    
believed the amount was insane  when compared to her income,                                                                    
which  was not  much  over  the qualifying  rate  for a  tax                                                                    
subsidy. She asked  the committee to consider  what it would                                                                    
be  like  to not  have  health  insurance even  though  they                                                                    
worked  hard  and contributed  to  the  social and  economic                                                                    
wellbeing of  the state's communities.  She did not  want to                                                                    
be a  person looking in  the mirror  and terrified to  go to                                                                    
the doctor  because she  could not  afford it.  She implored                                                                    
the committee to think about Alaskans.                                                                                          
Co-Chair Thompson CLOSED public testimony.                                                                                      
Representative  Wilson stated  that  2.7  percent was  going                                                                    
into a  fund, which could  exceed the $55  million; however,                                                                    
the money  was not specifically  designated to one  agency -                                                                    
it would  be up to  the department to utilize.  She believed                                                                    
the  change  could  mean  increased  competition  in  Alaska                                                                    
because the  goal was to try  to alleviate some of  the high                                                                    
risk. Additionally,  everybody on  insurance paying  the 2.7                                                                    
percent would be funding the  particular issue. She surmised                                                                    
that hopefully  most everyone should  benefit in some  way -                                                                    
individuals may  not see  a decrease in  what they  pay, but                                                                    
hopefully the  increase would  not be  as significant  as it                                                                    
would be if no action was taken.                                                                                                
10:18:06 AM                                                                                                                   
Mr. Parady  answered in the  affirmative. The fund  would be                                                                    
available  to any  insurer providing  coverage and  it would                                                                    
moderate the rate increase for the individual market.                                                                           
Representative  Wilson stated  that  the federal  government                                                                    
may choose  to continue the tax,  but it was not  yet known.                                                                    
She  added the  program and  waiver could  also change.  She                                                                    
surmised that it  was possible that in one or  two years the                                                                    
money may not be needed due to potential federal changes.                                                                       
Mr. Parady answered that it was the hope.                                                                                       
Vice-Chair  Saddler believed  the  bill was  focused at  the                                                                    
individual  health  insurance  market. He  referred  to  the                                                                    
previous  question  related  to  all  of  the  other  policy                                                                    
holders who  would pay the  cost. He wondered if  there were                                                                    
any other  lines of  insurance in the  same dire  straits as                                                                    
health  insurance. He  asked if  there was  a risk  of other                                                                    
people going after the money.                                                                                                   
Ms.  Wing-Heier answered  that at  present  the small  group                                                                    
market,  which was  the only  other  market, was  performing                                                                    
fairly  well.  She   relayed  she  could  not   say  it  was                                                                    
performing  excellently, but  at present  it was  supporting                                                                    
Vice-Chair Saddler provided scenario  that involved "a rash"                                                                    
of   marijuana  induced   auto  accidents   and  there   was                                                                    
insufficient  money to  pay  for all  of  the auto  accident                                                                    
collisions. He  asked if the  auto insurance  industry would                                                                    
have access  to the  money. Ms.  Wing-Heier answered  in the                                                                    
negative.  The fund  was strictly  for healthcare  insurance                                                                    
through ACHIA.                                                                                                                  
Co-Chair   Thompson  relayed   that   the  committee   would                                                                    
reconvene later in the day to address a forthcoming CS.                                                                         
10:20:32 AM                                                                                                                   
5:16:49 PM                                                                                                                    
Co-Chair Thompson discussed the agenda.                                                                                         
Co-Chair  Neuman  MOVED  to  ADOPT  the  proposed  committee                                                                    
substitute    for   HB    374,   Work    Draft   29-GH2126\N                                                                    
(Glover/Wallace, 5/27/16). There being  NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
JANE   PIERSON,   STAFF,  REPRESENTATIVE   STEVE   THOMPSON,                                                                    
explained the changes  in the CS. She  directed attention to                                                                    
Section  1, page  2,  lines 1  through 5,  which  was a  new                                                                    
section relating to the duties  of the director to formulate                                                                    
general  policy and  adopt regulations  to administer  "this                                                                    
chapter"  and  to  specify   covered  conditions  that  were                                                                    
eligible for  payment from  the Alaska  Comprehensive Health                                                                    
Insurance fund. Under Section 2,  page 2, lines 7 through 27                                                                    
a new  subsection was created  in AS 21.55.430  that defined                                                                    
the disposition of proceeds from  tax on insurance premiums.                                                                    
She detailed  that insurance  premium taxes  collected would                                                                    
be  deposited directly  into  the  new Alaska  Comprehensive                                                                    
Health Insurance  fund. The legislature would  then have the                                                                    
ability to appropriate monies from  the fund to DCCED to pay                                                                    
claims  under  the  ACHI   reinsurance  program.  Section  2                                                                    
further defined  net proceeds that  would be  deposited into                                                                    
the fund.                                                                                                                       
5:19:40 PM                                                                                                                    
Representative Wilson  pointed to page  2 lines 3  through 5                                                                    
related  to  specifying  covered  conditions  [eligible  for                                                                    
payment through  the fund]. She  thought the bill  was based                                                                    
on high risk  individuals who may be outside  "of that." She                                                                    
remarked that at present the  list was very short. She asked                                                                    
if  there  would  be  the  same type  of  list  as  the  one                                                                    
currently  utilized for  ACHIA. She  asked for  verification                                                                    
that even if  people were rejected they would  still have to                                                                    
be on the list.                                                                                                                 
Ms. Pierson deferred the question to the department.                                                                            
Ms. Wing-Heier replied  that the current ACHIA,  which was a                                                                    
direct  payment,  had a  very  specific  list of  qualifying                                                                    
conditions. The reinsurance program  would be different. She                                                                    
detailed that  under the ACA everyone  was guaranteed issue.                                                                    
The  bill looked  at taking  the top  cost drivers  and only                                                                    
reinsuring those  individuals under the ACA;  those differed                                                                    
from  what was  under  the old  ACHIA.  She explained  there                                                                    
would  still   be  a  condition   list,  but   only  certain                                                                    
conditions  would  be  eligible   -  it  would  not  include                                                                    
everything under the  ACA - otherwise it  would assume every                                                                    
claim.  She elaborated  that under  the first  21 months  it                                                                    
would  be the  $240 million  paid. The  bill only  looked at                                                                    
taking $55  million or whatever  amount was  appropriated by                                                                    
the  legislature. She  relayed  that the  $55 million  would                                                                    
address  the top  cost driver  claims (shown  in the  claims                                                                    
data)  for the  first 21  months of  the program  started in                                                                    
Representative  Wilson pointed  to  the  definition of  high                                                                    
risk residents  on page 2,  beginning on line 29.  She noted                                                                    
the  definition specified  an individual  would  have to  be                                                                    
rejected  for   medical  reasons   [after  applying   for  a                                                                    
subscriber contract].  She asked  if an individual  could be                                                                    
rejected, but not fall under the proposed plan.                                                                                 
Ms. Wing-Heier answered that the  language had been left for                                                                    
the    Medigap/Medsup   policies    [Medicare   Supplemental                                                                    
Insurance]. To  pick up  the high  risk residents  or claims                                                                    
under the ACA,  only subsection (C) [of Section  3] had been                                                                    
amended in  the CS (in order  to make it ACA  compliant). To                                                                    
pick up  the Medicare supplemental insurance  payments under                                                                    
the old  ACHIA, the  language remained as-is  in subsections                                                                    
(A)  and (B)  to  keep  the condition  list  in the  current                                                                    
ACHIA. She  relayed there were still  constituents under the                                                                    
policy,  there  was not  a  market  in Alaska  for  Medicare                                                                    
patients for pharmaceutical policies.                                                                                           
Representative  Wilson  wanted  to   ensure  that  with  the                                                                    
passage  of the  bill situations  would not  occur where  an                                                                    
individual may  be unable  to find  insurance from  the pool                                                                    
and could  not qualify under  the bill either.  She remarked                                                                    
the  situation had  happened in  the past  prior to  the ACA                                                                    
where an individual  with a high cost disease  could not get                                                                    
coverage because they  were not in one of the  top high risk                                                                    
Ms.  Wing-Heier   answered  that   under  the  ACA   it  was                                                                    
guaranteed issue; no one could  be rejected. The reinsurance                                                                    
bill  was only  defining the  claims it  would seat  and pay                                                                    
with state funds.                                                                                                               
5:24:16 PM                                                                                                                    
Representative  Munoz asked  if the  payments would  be made                                                                    
directly  from the  fund to  the claimant  or if  the claims                                                                    
would go to the insurance  company for payment. She asked if                                                                    
the   individual    purchased   insurance    through   "your                                                                    
organization" or through  ACHIA. Alternatively, she wondered                                                                    
if  the  individuals  would still  be  under  the  insurance                                                                    
Ms.  Wing-Heier answered  that people  and  families in  the                                                                    
individual market  would go to healthcare.gov,  a broker, or                                                                    
a navigator, and  would purchase insurance just  as they did                                                                    
at  present.  Additionally,  the  individuals  would  submit                                                                    
claims just  as they did at  present. She noted that  all of                                                                    
the mechanics  were still being  worked out, but  in theory,                                                                    
Premera would  pay the claims as  they came in on  a monthly                                                                    
basis. Those claims  based on the 10 to 15  (or whatever the                                                                    
cutoff  point  may  be)  claims   for  the  $55  million  or                                                                    
appropriated  amount would  be triggered  and sent  to ACHIA                                                                    
for payment.  She furthered that ACHIA  would then reimburse                                                                    
Premera;  ACHIA   and  its  administrator   would  carefully                                                                    
monitor  the condition  list against  what was  appropriated                                                                    
against what was submitted by  Premera. She added that DCCED                                                                    
would oversee the entire process.                                                                                               
5:25:58 PM                                                                                                                    
Representative  Gara asked  for verification  that the  bill                                                                    
applied  to people  who  would be  covered  under a  private                                                                    
insurance company,  but they would  have conditions  and the                                                                    
insurance company  would go  to the  ACHIA program  for some                                                                    
reimbursement  to  keep  the cost  down  for  the  insurance                                                                    
company and hopefully the premiums  down for the members. He                                                                    
noted that sometimes the two did not get tied together.                                                                         
Ms.  Wing-Heier replied  in  the  affirmative. She  detailed                                                                    
that  at the  same  time reimbursement  was  sought for  the                                                                    
claims, the premium  would seat. She expounded  that when an                                                                    
individual  was  diagnosed and  the  claim  was seated,  the                                                                    
premium was also seated. She  continued that essentially the                                                                    
whole person  (claim and  premium) was  seated to  ACHIA for                                                                    
the policy year and the claims were paid by ACHIA.                                                                              
Representative Kawasaki asked if  it would be a negotiation.                                                                    
He remarked  there were  a very  limited number  of diseases                                                                    
currently covered under  ACHIA. He asked if  the issue would                                                                    
be up to the department to decide.                                                                                              
Ms. Wing-Heier  answered that  the bill  focused on  the top                                                                    
cost drivers  that were causing  premiums to see  40 percent                                                                    
increases for the third  year in a row - it  was not so much                                                                    
a decision,  but what was  driving the market. The  bill was                                                                    
trying to remove  the increases from the  market through the                                                                    
reinsurance program.                                                                                                            
Representative  Kawasaki  spoke  to  the  mechanics  of  the                                                                    
program.  He  referred  to  the  end of  Section  1  of  the                                                                    
legislation  related   to  high   risk  residents   and  the                                                                    
Comprehensive   Health   Insurance   fund.  He   asked   for                                                                    
verification  DCCED  would  be   making  the  decisions.  He                                                                    
clarified he  was speaking about high  cost individuals that                                                                    
the  department was  either negotiating  with or  talking to                                                                    
(current insurers) that the department would identify.                                                                          
Ms. Wing-Heier answered that in  January of the current year                                                                    
the  division  had  submitted a  "data  call"  to  Assurant,                                                                    
Premera, and Moda.  The division had asked  the companies to                                                                    
provide  the claim  data from  2014 and  2015, which  it had                                                                    
sent  to an  independent actuary.  The actuary  had reviewed                                                                    
all of  the losses  for the three  insurers that  were doing                                                                    
business in the individual market.  She noted Aetna only had                                                                    
a handful  of insurers (103)  and had been excused  from the                                                                    
data call.  The actuary had  listed the top  claims included                                                                    
in the data  provided. She clarified that  instead of having                                                                    
the  division make  the call,  it had  asked the  actuary to                                                                    
aggregate and list  the data of the three  insurers from the                                                                    
highest cost claims down.                                                                                                       
Representative Kawasaki  surmised that  it could  pertain to                                                                    
an   individual  with   multiple   complications  within   a                                                                    
particular list. He asked how the situation would work.                                                                         
Ms. Wing-Heier  answered that the  division had gone  from a                                                                    
diagnosis code to  a fixed code to ensure it  was not double                                                                    
counting. The  process had dropped  the number  of claimants                                                                    
in  half.   For  example,  the   division  was   looking  at                                                                    
individuals as opposed  to a person with  asthma and cancer.                                                                    
She explained it was the  reason the division was looking at                                                                    
the entire treatment  of a person and  their premium instead                                                                    
of only picking up certain doctor bills or treatments.                                                                          
5:30:32 PM                                                                                                                    
Representative Gara MOVED to ADOPT Conceptual Amendment 1:                                                                      
     Page 1, line 1, following "Act":                                                                                           
     Insert  "relating to  coverage under  the Comprehensive                                                                    
     Health Insurance Association;"                                                                                             
     Page 1, following line 5:                                                                                                  
     Insert a new bill section to read:                                                                                         
     "* Section 1.  AS 21.55.320 is amended by  adding a new                                                                    
     subsection to read:                                                                                                        
     (b) When  a person  with a  disability that  is covered                                                                    
     under 42  U.S.C. 1935  - 1935b-10  (Title XVIII  of the                                                                    
     Social Security  Act) is  referred by  an insurer  to a                                                                    
     state plan  under AS 21.55.310, the  plan administrator                                                                    
     shall request that the Department  of Health and Social                                                                    
     Services  provide  information   to  the  person  about                                                                    
     applying for the federal benefits."                                                                                        
     Page l, line 6:                                                                                                            
     Delete "Section 1"                                                                                                         
     Insert "Sec. 2"                                                                                                            
     Renumber the following bill sections accordingly.                                                                          
     Page 3, line 24:                                                                                                           
     Delete "Section 2"                                                                                                         
     Insert "Section 3"                                                                                                         
     Page 3, line 25:                                                                                                           
     Delete "Sections 1 and 3 - 5"                                                                                              
     Insert "Sections 1, 2, and 4 - 6"                                                                                          
Co-Chair Thompson OBJECTED for discussion.                                                                                      
Representative  Gara  explained  there was  social  security                                                                    
disability  insurance that  was disability-based  as opposed                                                                    
to asset  or income-based. He  noted it was  a determination                                                                    
about  whether or  not  a person  could  work. He  explained                                                                    
there were  a number  of conditions  covered by  ACHIA (e.g.                                                                    
end-stage  liver   disease,  acute  liver   failure,  cystic                                                                    
fibrosis,  and   other).  He  relayed   that  many   of  the                                                                    
individuals could not work and  qualified for the definition                                                                    
of disability.  Currently if a  person was  receiving social                                                                    
security disability they could not  be on the ACHIA plan. He                                                                    
discussed the  bill's substantial  cost. He had  worked with                                                                    
DCCED  and  the Department  of  Health  and Social  Services                                                                    
(DHSS) and the  departments would like to  help refer people                                                                    
to get the  federal insurance they were  entitled to because                                                                    
of  their  condition.  He  elaborated   it  would  mean  the                                                                    
individuals  and the  state would  not have  to pay  for the                                                                    
insurance.  He  believed  it was  a  win-win  scenario.  The                                                                    
amendment specified the  departments should help individuals                                                                    
through the  process to apply  for the  disability insurance                                                                    
when eligible.                                                                                                                  
Representative  Wilson believed  a lawyer  was needed  to go                                                                    
through   the   social  security   disability   [application                                                                    
process]. She remarked  it was not merely  about filling out                                                                    
a  form. She  asked  if  a person  could  get the  insurance                                                                    
without  actually  qualifying  and  being  put  into  social                                                                    
security disability. She did not believe so.                                                                                    
Ms. Wing-Heier  answered that when  a person applied  in the                                                                    
marketplace at  healthcare.gov, they were asked  if they had                                                                    
a disability.  In theory  the application  was then  sent to                                                                    
Medicare or  Medicaid and CMS  sent it to the  state agency.                                                                    
She furthered  that in theory  what Representative  Gara was                                                                    
suggesting should  be taken care  of. However, in  the event                                                                    
that  someone  was not  taken  care  of, the  amendment  was                                                                    
asking the departments to double  check to ensure the proper                                                                    
benefits were  being applied when  the departments  sent the                                                                    
claim on to Medicare or Medicaid.                                                                                               
Representative Wilson  spoke to social  security disability.                                                                    
She believed there were disabled  people who could be on the                                                                    
list  and qualify  for ACHIA  who were  working and  did not                                                                    
want social security disability  because it could "mess with                                                                    
everything  else" a  person had.  She thought  the amendment                                                                    
would require individuals to go  through the process because                                                                    
there was a  chance they would qualify  for social security,                                                                    
which  would provide  insurance. She  agreed it  would work,                                                                    
but  she  believed  a  person  who was  working  and  had  a                                                                    
disability   would  have   to  go   after  social   security                                                                    
disability even  if they did not  want to or they  would not                                                                    
be covered.                                                                                                                     
Representative Gara countered that  the amendment did not do                                                                    
what  Representative Wilson  thought it  did. He  pointed to                                                                    
line  11  and  explained   the  amendment  did  not  require                                                                    
individuals to  get on social security  disability. He added                                                                    
there  were  other  related  laws   the  amendment  did  not                                                                    
address.   He  clarified   the  amendment   would  ask   the                                                                    
departments  to  provide  individuals with  the  information                                                                    
about how to apply [for  social security disability]; it did                                                                    
not require  a person to  apply. He stated  that individuals                                                                    
in the  condition often  did not have  much money  and often                                                                    
did not know  their way through the  federal bureaucracy. He                                                                    
underscored   the   amendment   would  only   specify   that                                                                    
individuals would  be given information about  how to apply.                                                                    
He furthered it was  insurance the individuals were entitled                                                                    
to at  no cost.  He believed the  individuals should  not be                                                                    
stuck paying high  premiums because they did  not know about                                                                    
a program they  could apply for. He emphasized  a lawyer was                                                                    
not needed to get social  security disability; however, if a                                                                    
person was denied  the benefit they may need  an attorney to                                                                    
help them with the appeal process.                                                                                              
5:35:50 PM                                                                                                                    
Co-Chair Thompson stated that  based on personal experience,                                                                    
social  security was  not that  difficult to  deal with.  He                                                                    
shared that his  wife had gone through  chemotherapy for two                                                                    
years and had been unable  to work. He furthered that social                                                                    
security had requested a letter  from her doctor and she was                                                                    
able to  immediately begin drawing social  security benefits                                                                    
at 52 years of age. He stated  that it was not a big process                                                                    
that required an attorney. He  added the amendment pertained                                                                    
to slightly different situations;  his wife had drawn social                                                                    
security payments like she had retired.                                                                                         
Representative  Wilson  understood  the  amendment  slightly                                                                    
better.   She   surmised   the   amendment   specified   the                                                                    
departments  would  merely   provide  individuals  with  the                                                                    
paperwork needed to apply  [for social security disability].                                                                    
She initially thought the  amendment would force individuals                                                                    
to apply  for the benefit.  She read from the  amendment and                                                                    
surmised   the   departments   would  merely   provide   the                                                                    
application  information  to  individuals  to  use  if  they                                                                    
Ms. Wing-Heier answered in the affirmative.                                                                                     
Representative Wilson clarified that  it was not possible to                                                                    
just  get a  federal  insurance without  being qualified  as                                                                    
disabled. She reiterated her  understanding of the amendment                                                                    
and  relayed she  was fine  with its  action. She  wanted to                                                                    
ensure  the state  was not  forcing working  individuals who                                                                    
had a disability into a federal  system they did not want to                                                                    
Co-Chair Thompson noted that  Representative Liz Vasquez was                                                                    
in the audience.                                                                                                                
Representative Gattis stated she  did not know any specifics                                                                    
on  how   a  person  received  social   security  disability                                                                    
insurance benefits. She remarked  that because the amendment                                                                    
was  only about  providing information  to individuals,  she                                                                    
did not need further information about the process.                                                                             
Co-Chair  Thompson  WITHDREW  his  OBJECTION  to  Conceptual                                                                    
Amendment 1. There being  NO OBJECTION, Conceptual Amendment                                                                    
1 was ADOPTED.                                                                                                                  
Vice-Chair  Saddler  addressed  the  fiscal  note  from  the                                                                    
Department of Commerce,  Community and Economic Development,                                                                    
which called  for an appropriation  of $55 million in  FY 17                                                                    
in the grants  and benefits line and included  no changes in                                                                    
Representative Wilson  wanted to ensure the  $55 million was                                                                    
not GF  and would  be funds collected  with the  2.7 percent                                                                    
Mr.  Teal explained  that the  premium tax  collections went                                                                    
into the  fund. The premium taxes  were currently classified                                                                    
as  UGF,  but  as  soon as  the  legislature  specified  the                                                                    
revenue  was directed  to  a specific  fund  for a  specific                                                                    
purpose they  became DGF. He  provided a scenario  where the                                                                    
premium taxes generated totaled  $65 million, which he noted                                                                    
may be more  accurate than $55 million. He  explained it did                                                                    
not matter how much was  collected. The collections would go                                                                    
into the  fund and  the legislature could  appropriate money                                                                    
from the  fund to  the Division  of Insurance.  He explained                                                                    
under the  scenario $55  million could  be allocated  to the                                                                    
division and  would put a  cap on the amount  the department                                                                    
could spend for the program.                                                                                                    
Representative Wilson  asked if the  $55 million would  be a                                                                    
cap "from here  on out." Mr. Teal answered  in the negative.                                                                    
He  explained  the cap  would  be  whatever the  legislature                                                                    
decided upon. He  furthered if it turned  out that insurance                                                                    
premiums continued  to rise, taxes  rose, and there  was $70                                                                    
million collected  in FY 17,  the $70 million would  go into                                                                    
the fund  and the legislature  would decide how much  of the                                                                    
amount  it wanted  to appropriate.  He  elucidated that  any                                                                    
flow to the  fund and the appropriations from  the fund were                                                                    
not necessarily  connected. He added they  were connected in                                                                    
a  way because  the legislature  could not  appropriate more                                                                    
money than it had.                                                                                                              
Co-Chair  Neuman MOVED  to REPORT  CSHB 374(FIN)  as amended                                                                    
out  of committee  with individual  recommendations and  the                                                                    
accompanying fiscal note.                                                                                                       
Representative  Kawasaki OBJECTED.  He  recognized that  the                                                                    
legislation was a stopgap bill.  He referred to a 37 percent                                                                    
increase  in September  of 2014  and another  38 percent  in                                                                    
2014  and surmised  the bill  represented a  "Band-Aid on  a                                                                    
bullet  hole." He  stressed the  importance  of solving  the                                                                    
healthcare cost increase problem in  Alaska. He hoped it was                                                                    
a project  the committee  could undertake over  the interim.                                                                    
He expressed hope  that the $55 million would go  a long way                                                                    
in the  coming year,  but he believed  it was  "looking down                                                                    
the barrel of a gun."                                                                                                           
Representative Kawasaki WITHDREW his OBJECTION.                                                                                 
Vice-Chair Saddler  noted that Section 4  of the legislation                                                                    
gave  the Division  of Insurance  director the  authority to                                                                    
apply  for the  innovation waiver.  He encouraged  Ms. Wing-                                                                    
Heier to do so.                                                                                                                 
Ms. Wing-Heier  confirmed the division  would apply  for the                                                                    
There  being   NO  further  OBJECTION,  CSHB   374(FIN)  was                                                                    
REPORTED  out  of committee  as  amended  with a  "do  pass"                                                                    
recommendation and with one new  fiscal impact note from the                                                                    
Department of Commerce, Community and Economic Development.                                                                     
Co-Chair Thompson addressed the schedule for upcoming                                                                           

Document Name Date/Time Subjects
HB374 AK Premium Tax Rates DCCED Annual Report.pdf HFIN 5/27/2016 9:00:00 AM
HB 374