Legislature(2003 - 2004)

05/03/2004 09:06 AM Senate FIN

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

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