Interim Joint Committee on Appropriations and Revenue


Minutes of the<MeetNo1> 1st Meeting

of the 2016 Interim


<MeetMDY1> June 23, 2016


Call to Order and Roll Call

The<MeetNo2> 1st meeting of the Interim Joint Committee on Appropriations and Revenue was held on<Day> Thursday,<MeetMDY2> June 23, 2016, at<MeetTime> 1:00 PM, in<Room> Room 154 of the Capitol Annex. Senator Christian McDaniel, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Christian McDaniel, Co-Chair; Representative Rick Rand, Co-Chair; Senators Ralph Alvarado, Stan Humphries, Morgan McGarvey, Dennis Parrett, Wil Schroder, Brandon Smith, Robin L. Webb, and Stephen West; Representatives Linda Belcher, John Carney, Ron Crimm, Mike Denham, Bob M. DeWeese, Jeffery Donohue, Myron Dossett, Kelly Flood, Martha Jane King, Terry Mills, Steven Rudy, Sal Santoro, Dean Schamore, Arnold Simpson, Rita Smart, Wilson Stone, Tommy Turner, Susan Westrom, Addia Wuchner, and Jill York.


Guests: John Tilley, Secretary, Jon Grate, Deputy Secretary, and Jim Erwin, Deputy Commissioner, Justice and Public Safety Cabinet; Steve Miller, Commissioner, Cindy Murray, Budget Director, Eric Clark, Legislative Liaison, Cabinet for Health and Family Services; Scott Brinkman, Secretary of the Governor’s Executive Cabinet, Adam Meier, Deputy Chief of Staff, Office of the Governor.


LRC Staff: Pam Thomas, Charlotte Quarles, Jennifer Hays, and Jennifer Beeler.


In honor of Pam Thomas’s retirement, Chairman McDaniel and Chairman Rand proposed a resolution in her honor. The resolution was adopted by voice vote upon a motion from Chairman Rand, seconded by Representative Denham.


Testimony on prison population and utilization of private prisons

Secretary John Tilley started the presentation by explaining how Kentucky’s offender population is growing with more significant growth during the last seven months. He noted that this growth is why private prisons are being considered as a method to address the growing offender population.


Secretary Tilley shared a graph showing that approximately 23,700 total inmates in state custody as of June 15, 2016. He explained that Kentucky is unique when compared to other states because one third of all state inmates are housed in county jails. The only other state that uses a similar model is Louisiana. As of June 15, 2016, there were approximately 11,176 state inmates in county jails, which is well above the previous record high in June 2015. The total number of jail beds equals 19,160.


He also shared a graph depicting the growth of prison population numbers over the last ten years. During 2010 and 2013, a decrease in populations occurred, attributable to outside factors that are unusual. During that ten year period, 2015 and 2016 had the highest growth rates at 2.35 percent and 5.73 percent respectively.


Secretary Tilley stated that there are 26 jails that have populations over 140 percent capacity. There are three private prisons within the state all owned by the Corrections Corporation of America headquartered in Nashville, Tennessee. Those facilities are the Marion Adjustment Center (MAC), Lee Adjustment Center (LAC), and Otter Creek. The maximum capacity for MAC and LAC is 1,642 inmates. If the two prisons were utilized by the state again, the extra capacity at these facilities would help to address overcrowding in county jails.


Secretary Tilley stated that if inmates were transferred to private prisons, the projected jail state inmate population would still be 905 more than the average jail state inmate population in 2013, which was when the last private prison was closed. Using the current growth rate, the average jail population in calendar year 2017 is projected to be 9,907 if 1,642 private prison beds are utilized.


In response to a question from Representative Flood regarding the agency’s position on the use of private prisons, Secretary Tilley stated that he is not currently recommending the use of private prisons, more that it is an option that would relieve some of the local stress on county jails. Parole grant rates are lower than anticipated, revocations of those on parole are higher than expected, and discretion in the court systems have led to this population growth.


In response to a question from Representative Carney, Secretary Tilley explained that, within the inmate population of over 23,000, there is a high number of repeat offenders and the number of inmates in that category is increasing, but they do not have an exact number of repeat offenders.


In response to a question from Representative Wuchner, Secretary Tilley stated that there are currently no prisoners housed at the Marion Adjustment Center (MAC), he noted that the facilities have been maintained, are up to standard, have been inspected, and would be ready to house inmates within ninety to 120 days.


In response to a question from Representative Mills, Secretary Tilley explained that the use of private prisons would be a temporary solution to relieve some of the stress on the county jails.


In response to a question from Chairman Rand related to the population estimate used as part of the budget process and why these estimates were increasing at the high rates from the past, Secretary Tilley stated that there is no foolproof way to predict future prison populations. He explained that data from criminologist Jim Austin was used. Mr. Austin estimated that if the state had followed his recommendations, the population would decrease over ten years. Secretary Tilley explained that corrections has grown at unsustainable rates here in Kentucky and across the country. Kentucky typically incarcerates individuals longer than other states for the same crimes. Finally, there are so many human factors at play in estimating these prison populations that the task is difficult.


In response to a question from Representative Belcher, Secretary Tilley explained that the types of crimes that individuals are being incarcerated for are the same now as they were five years ago.


In response to a question from Representative Crimm, Secretary Tilley stated that there is a cost difference when an inmate is housed in a county, state or private jail facility. He said that county jails are paid $31 dollars per day as negotiated with jailers. State prisons cost approximately $65 per day, and private prisons by contract would have to be ten percent below the state cost.


Discussion of Medicaid costs and projections

Steve Miller, Commissioner of the Department for Medicaid Services, began by explaining that the Medicaid program has approximately 1.3 million members, including 435,700 children, 76,000 of which participate in KCHIP. 1.2 million members are in the managed care program, 440,300 of which were enrolled under Medicaid expansion. The system includes approximately 40,700 enrolled providers.


Commissioner Miller explained that health spending is projected to grow at an average rate of 5.8 percent from 2012 to 2022. The Affordable Care Act (ACA) expansions and the aging of the population are drivers for faster projected growth in 2014 and beyond. After 2016, Medicaid spending growth is expected to be about 6.6 percent per year. Health spending is projected to be 19.9 percent of gross domestic product by 2022.


Commissioner Miller stated that Medicaid enrollment has grown approximately 66 percent since the expansion was implemented in January 2014. The Medicaid expansion extends eligibility to individuals with income up to 138 percent of the federal poverty level. It also aligned benefit packages into one plan for both expansion and traditional populations.


Commissioner Miller noted that as of July 2015, there are five Managed Care Organization (MCO) contracts, and that all MCOs now provide services statewide. The new MCOs are required to use national standards to determine medical necessity and have strengthened network adequacy requirements.


The Commissioner provided a brief description of two graphs illustrating expenditures compared to enrollment. He stated that one takeaway from the graphs is that the state spends almost $20 million per day on Medicaid managed care, and $30 million per day overall. In the enacted budget, funding is provided for all existing Medicaid covered services, including the expansion of Medicaid, and for the development and implementation of the Medicaid Enterprise Management System (MEMS).


Commissioner Miller explained that the ACA was intended to extend coverage to 95 percent of all Americans through expanded Medicaid and the new marketplace exchanges. Nationally, the Congressional Budget Office estimated 40 percent of the newly insured would obtain coverage through Medicaid and 60 percent would obtain coverage through subsidized commercial policies. The results are much different in Kentucky. Nearly 80 percent of the newly insured Kentuckians obtained coverage through Medicaid. Currently, 1.37 million Kentuckians are enrolled in Medicaid, which comprises 30 percent of the state’s population. Projected fiscal year 2018 enrollment is 1.43 million, which is 32 percent of the state’s population.


Commissioner Miller stated that as of February 2015, the projected cost to the state for fiscal years 2017 and 2018 will total $247 million, and for fiscal years 2019 and 2020 will total $509 million.


The presentation then moved to a discussion of Kentucky HEALTH the Medicaid waiver proposal requested by the Governor. Adam Meier, deputy chief of staff to the Governor stated that the goals of the Section 1115 waiver are: (1) to improve participants’ health and help them be responsible for their health; (2) to encourage individuals to become active participants and consumers of healthcare; (3) to empower people to seek employment and transition to commercial health insurance coverage; (4) to implement delivery system reforms to improve quality and outcomes; and (5) to ensure fiscal sustainability.


Mr. Meier explained that the waiver proposal was tailored for Kentucky and developed to provide benefits equivalent to the Kentucky Employees’ Health Plan. This plan targets two eligibility groups: all able-bodied adults eligible for Medicaid, which includes the expansion population and other non-disabled Medicaid eligible adults; and low income children. There are two paths to coverage: an employer premium assistance program option; and a consumer driven health plan option.


He stated that the proposal institutes monthly premiums in lieu of copayments, because data suggests that participants prefer premiums over copays. Pregnant women and children would be exempt from all cost sharing. Premiums would be determined at a flat rate based on a sliding scale equal to or less than 2 percent of income for each income group related to the federal poverty level. After two years, cost sharing will increase for individuals above 100 percent of the federal poverty level to prepare and encourage them to transition to private market coverage.


Mr. Meier then explained the employer premium assistance option which would provide premium reimbursement for enrollment in employer sponsored plans. Under the proposal, Kentucky HEALTH would reimburse the employee for premiums paid and would provide wrap around benefits in the event that benefits are not as robust as those offered by the benchmark health plan.


He stated that the consumer driven health plan option is very similar to the Kentucky Employees’ Health Plan. There will be a deductible but the state would prefund an account with $1,000 to cover deductible expenses, similar to a health savings account. Preventative services would be excluded from the deductible and be fully covered. In order to encourage prudent use of that account, there will be a rollover of 50 percent of unused account balances at the end of each year into the My Rewards account. The My Rewards account can be used to pay for enhanced benefits such as vision, dental, over-the-counter medications and gym membership reimbursement. As an incentive for members to move off the plan and into private insurance, any former member may apply to receive the unused portion of the account, up to $500, after leaving the plan for 18 months.


Mr. Meier explained that the proposal includes non-payment penalties for members who choose not to make a premium payment within 60 days of the due date. Members who do not pay will be subject to disenrollment from the program for up to six months. Individuals may re-enroll before the six months have passed by paying two months of missed premiums and one month of premium going forward. The member must also complete a health or financial literacy course.


He stated that these policies are designed to help members learn how to use commercial policies. Benefits begin when members make the first payment, and individuals with income below 100 percent of the federal poverty level who do not make the first payment will receive benefits 60 days after application approval. During the open enrollment period, beneficiaries must return re-enrollment paperwork within a specific time period, or the individual must wait six months for the next open enrollment period to reenroll in coverage. Members select a managed care plan at enrollment and must maintain that plan choice for the entire 12 month benefit period.


In response to a question from Representative Smart, Mr. Meier explained that the biggest change for the managed care providers will be better oversight of the contracts. Previously, those contracts were not managed well which resulted in a large medical loss ratio and underwriting ratios resulting in profits that are out of line with national trends.


In response to a question from Representative Flood, Mr. Meier stated that the community engagement incentive is a pilot program that will be phased in over 12 months. After 12 months, a member would be required to perform 20 hours of community service. The Cabinet for Health and Family Services along with other agencies are working to implement this program.


In response to a question from Chairman Rand, Mr. Meier stated that an able-bodied individual is someone 18 to 64 years of age without disabilities, who is without a severe physical or mental illness. This population can be identified within today’s Medicaid members.


In response to a question from Representative Westrom, Mr. Meier stated that to address smoking, plan members can take smoking cessation classes which will earn them money for their My Rewards account.


In response to a question from Senator Webb, Mr. Meier stated that the definition of an able-bodied individual is federal, but the medically frail definition will be determined by objective criteria.


In response to a question from Chairman Rand, Secretary Brinkman explained that the waiver proposal must go through a federally mandated 30 day public comment period. Two public hearings are required, however the cabinet will be holding three public hearings, one in the east, one in the west and one in the central area of the state. The cabinet will evaluate all public comments and the final waiver proposal will be submitted to the federal government around August 1, 2016, with a request that the federal government provide final approval no later than September 30, 2016.


With no further business to come before the committee, the meeting was adjourned at 3:05 p.m.