Call to Order and Roll Call
The 2nd meeting of the Budget Review Subcommittee on Economic Development and Tourism, Natural Resources and Environmental Protection of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, December 2, 2010, at 10:00 AM, in Room 129 of the Capitol Annex. Representative John A. Arnold Jr., Chair, called the meeting to order. The roll was called later in the meeting.
Present were:
Members: Representative John A. Arnold Jr., Co-Chair; Representatives Dennis Horlander, Dennis Keene, Marie Rader, Fitz Steele, Jim Stewart III, and Susan Westrom.
Guests: Marcheta Sparrow, Secretary of the Tourism, Arts, and Heritage Cabinet; John Nicholson, Executive Director of the Kentucky Horse Park; Mike Cooper, Commissioner of the Department of Travel and Tourism; and Representative Rocky Adkins.
LRC Staff: Kelly Dudley, Melissa Lueker, Perry Papka, and Marlene Rutherford.
Chair Arnold acknowledged that this meeting was the last meeting for Representative Firkins and Senator Boswell and thanked and applauded them for their service on the committee.
Update on 2010 Alltech FEI World Equestrian Games
Marcheta Sparrow, Secretary of the Tourism, Arts, and Heritage Cabinet, John Nicholson, Executive Director of the Kentucky Horse Park, and Mike Cooper, Commissioner of the Department of Travel and Tourism, updated the committee on the World Equestrian Games. Secretary Sparrow publicly acknowledged her staff and how proud she is for everything that was accomplished with the 2010 Alltech FEI World Equestrian Games. In all her experience in the tourism industry, she has never been involved in an event that she has been more proud of or that she believes has accomplished more for economic development and tourism in Kentucky. The outreach of this event was enormous.
Mr. Nicholson stated that from the Horse Park’s standpoint the World Equestrian Games went very well. He thanked the General Assembly for its support. The Games were a real source of pride for the Horse Park because the idea of bringing the Games to the park was conceived at the park several years ago. All Kentuckians should be proud of this event. He said it is difficult to measure the legacy effect of the games. Because of the Games, new events and an enhanced worldwide reputation were gained. Competitors praised the indoor arena for equestrian competition. There are currently thirty-four events booked for the indoor arena for 2011, nineteen of which are new and only there because of the new facilities and that those events have been expanded. International level competition will be performed at the Horse Park every year from now forward which will have a tremendous economic impact. These Games would not have been in Kentucky had it not been for Kentucky’s reputation for the “Horse Capital of the World” which is a reminder that this industry must be preserved. The 2010 Alltech FEI World Equestrian Games is a reflection of the success of the Horse Park. The success of the Horse Park is because of the investment made over the years.
Mike Cooper indicated that the challenge of the Department of Travel and Tourism during the World Equestrian Games was to showcase Kentucky, its tourism attractions, products, and entertainment. To accomplish this, a 25,000 square foot area was designated as the Kentucky Experience made up of three pavilions. A courtyard was designed by Kentucky native Jon Carloftis and the state Welcome Center staff greeted visitors from around the world. The total project budget for the Kentucky Experience was $2 million dollars and of that amount $1.7 million dollars were sponsorships through partnerships across the state, and $300,000 was from the Department of Travel and Tourism marketing budget over a period of two years. The average attendance at the Kentucky Experience was about 4,000 guests per day or a total of 65,000 during the games; over 400 volunteers from across the state; and the department worked with fourteen museums from across the state bringing in approximately fifty artifacts and worked with all the agencies in the Tourism, Arts, and Heritage Cabinet to support the Kentucky Experience.
There were sixty-eight musical groups that performed from 85 counties. A satellite artisan center was also set up inside the Kentucky Experience which took in over $100,000 in revenue during the games in addition to what business was generated at the Berea Artisan Center. There was a tasting area and working with the Alltech and Kentucky Proud products groups served about 9,000 flights of bourbon, beer, and wine. The Kentucky Experience project has united the tourism industry throughout the state. The tourism area for the Games had 180 four by eight panels that covered all nine tourism regions and those panels will be part of a display at the Kentucky History Center, possibly the State Fair, and an event called Travel South USA, a group travel showcase, in 2012 in Louisville.
In response to a question from Representative Keene regarding the bourbon tasting, Secretary Sparrow stated that this was accomplished by using the food concessionaire and that it was successful, but it was limited to the official liquor of the Games and not representative of all the distilleries of Kentucky. The tasting bill has its merit and would allow a showcase of the bourbon industry.
Representative Steele commended Secretary Sparrow and other state employees who worked at the Games especially the park rangers and state troopers.
Representative Westrom also acknowledged the hard work of the cabinet and volunteers, and the many long hours worked. She also thanked the members of the committee and General Assembly because of the many sacrifices that had to be made in the state parks.
Representative Stewart asked if the yellow striping on park roads could be updated, especially for patrons and visitors. Mr. Cooper indicated that his job is marketing and selling the state, that he works closely with both Secretary Sparrow and Commissioner van der Meer of the Department of Parks, and that he would discuss this issue with them.
Majority Floor Leader, Representative Adkins complimented the cabinet and said that the state needs to maintain its reputation of having the best state parks system in the country. He understood in these tough economic times the cutback in work hours of park employees was having a tremendous affect on morale and that as there is continued growth in the economy that the cabinet look at restoring those hours back to the employees. Secretary Sparrow said that both she and Commissioner van de Meer understand the sacrifices that employees have made and are concerned on a daily basis for their well being.
Chair Arnold indicated that one comment made to him concerning the Games related to the limited food concessions. Secretary Sparrow indicated that this would be brought to the attention of the World Games 2010 Foundation who was responsible for this and that since this was the first of this type event for the state that much was learned throughout the process.
In response to a question by Chair Arnold concerning how the World Equestrian Games did financially, Mr. Nicholson pointed out that the Games were funded privately through the World Games 2010 Foundation which was established for the purpose of operating the 2010 Games. Dr. Lyons, Jamie Link, and others have indicated that they expect everyone to be paid. From the Horse Park’s point of view, the park had a much larger September and October than it has ever had, and from an operational standpoint it was a wash but because of the exposure for the park and state financially that cannot be measured. Mr. Cooper said that the state will continue to reap benefits and that the Kentucky Experience broke even.
In response to a question by Chair Arnold as to whether the state was out money in helping to promote the Games, Secretary Sparrow indicated that the $300,000 as the state’s share of the partnership for the Kentucky Experience came out of the cabinet’s budget but there were no funds turned over to the Foundation for the payment of bills.
Representative Rader complimented the Transportation Cabinet for the traffic control around the Lexington area and Games as well as the cabinet’s staff for all the planning and hard work to make the event such a success.
Discussion on Health Insurance Reform
William Nold, Director of the Health and Life Division of the Department of Insurance, and D. J. Wasson of the Commissioner’s Office who have been involved in the effect of the healthcare reform bill, began the department’s presentation in the absence of Sharon Clark, Commissioner of Insurance.
Ms. Wasson noted that the bill passed by Congress is a lengthy bill and only a small portion deals with insurance. Several decisions had to be made early on about a transitional program to lead into the main reforms that go into effect in 2014. The first issue dealt with a temporary high risk pool that the federal government established. Kentucky has a high risk pool, Kentucky Access, which will continue, but there will be a federal risk pool to help individuals with pre-existing conditions and who are uninsured to obtain insurance now until 2014 when the other reforms become effective. States had the option to run the federal high risk pool or allow the federal government to run it and Kentucky chose to allow the federal government to operate the temporary high risk pool to protect the state from unknown liabilities. It is currently running and increasing in membership.
Mr. Nold discussed grandfathered plans. The state waited for the federal Department of Health and Human Services to implement regulations to explain more fully what the bill was intended to do as it relates to grandfathering of health plans. The federal government’s regulatory process includes the ability to expand on the law that was enacted as long as the expansion fits into the overall statutory purposes of the law. Implementing this new healthcare law is a very fluid process and that all the regulations have not been developed yet. The department meets weekly via phone with the Department of Health and Human Services to discuss various issues and keep apprised when the regulations will be implemented. The federal government set up standards that insurance companies had to meet with respect to policies or any changes in their policies that would result in those policies becoming nongrandfathered. One of the rules was that if an employer changed insurance companies they would lose their grandfathered status but that this was corrected recently by allowing a company to retain grandfather status so long as the other rules were met with respect to increasing the amount of deductibles or other changes.
Ms. Wasson indicated that the reason the grandfathered status is important is because of market reforms that went into effect September 23, 2010, and will impact existing policies as they come up for renewal but not all market reforms impact all the policies. She said that some will apply to all plans and some to new plans (not grandfathered plans). Most of the reforms are already addressed in Kentucky’s Insurance Code, although several are different, for example, the extension of dependent coverage until age 26. In Kentucky, dependents are covered until age 25.
Commissioner Sharon Clark indicated the department had many responsibilities as a result of the federal healthcare law and one of those responsibilities was the rate review process. Kentucky is one of twenty-five states that already conducts a review of rates, but it has been expanded by the new federal law. This rate review will be expanded to the large group market, which was not done previously, and that the department will have to determine when there is an unreasonable premium increase. The department is still waiting on the federal government to let the states know what the definition will be for an unreasonable premium increase.
Commissioner Clark indicated that the medical loss ratio has been one of the most controversial issues. This is where the provisions of the federal law indicate that 80 percent or 80 cents of every dollar has to be spent on the delivery of healthcare in small group and individual markets and 85 percent or 85 cents of every dollar in large group markets. Kentucky currently has these ratios in the statutes but not to that extent. There has also been a lot of discussion as to what should be included such as the prevention of fraud being considered pertinent to the delivery of service; are the aging commissions or wellness prevention programs to be considered in the delivery of service. This medical loss ratio was a charge given to the National Association of Insurance Commissioners (NAIC) and has been provided to the federal government. Another responsibility given to NAIC was the uniform explanation of coverage documents which means that from now forward there will be one set of definitions used by all health insurers. The whole premise is to make it easier and more consumer friendly in the purchase of insurance.
Commissioner Clark said that Kentucky received a $1 million premium review grant in August in order to assist the department in facilitating the reporting requirements that will be needed. Kentucky is fortunate because it already has the expertise in reviewing rates. The federal law also provided for a consumer assistance program and Kentucky was awarded a $215,784 grant in October and was just notified this morning received an additional $270,000 grant. This grant money will be used for consumer outreach and assisting consumers in understanding their rights, by educating them on the different possibilities of coverage. The grant will also be used to enhance existing databases to allow staff to capture additional information about the affordability and access of insurance. Another grant is the exchange planning grant. Kentucky has not made the decision whether it will operate the health exchange established on January 1, 2014, or whether it will be operated by the federal government. This administration will be diligent in determining the best way to proceed. One of the responsibilities of the planning grant is to determine information from the insurance market place on a county level. There are 600,000 people in Kentucky who do not have health insurance and that it will be the responsibility of the department to determine where these people are located and why they do not have insurance. The department is doing a lot of outreach to consumers with webpage links, implementing meetings, conducting speaking engagements, and offering continuing education courses, and has worked with LRC staff to educate them on health insurance reform.
Commissioner Clark indicated that an exchange was an organized marketplace for the purchase of health insurance. One of the first rules will be to determine if an individual is eligible for Medicaid, or if family members are eligible for KCHIP, or eligible for private insurance purchase. The primary responsibilities of the Department of Insurance with the exchange will be certifying plans offered; publishing an on-line accounting of administrative costs, which goes back to the medical loss ratio; providing a toll-free number for consumer assistance hotline; rating each qualified health benefit plan based on quality and price as well as other requirements. She said understanding and implementing the new law has been an overwhelming task and staff has done a good job in getting the filings and other documentation in place that was required by the September 23 deadline.
Mr. Nold noted that during this process the insurers are making a really good attempt at conforming to the new requirements.
In response to a question of Chair Arnold about the $2.5 million grant monies, Commissioner Clark indicated that some of the funds would be used to hire six federally funded time limited positions to help in regulating the grandfathered plans which are regulated differently than the new plans issued after September 23, 2010 as well as the data reporting requirements. Mr. Nold also noted that part of the grant is intended to increase the transparency to the public as to what goes into the process of a rate review.
Replying to a question raised by Representative Stewart concerning state employees, Commissioner Clark indicated that the Department of Personnel administered the state employees’ health benefits plan and did not come under the Department of Insurance’s jurisdiction but if it was in the private marketplace it would come under the department’s jurisdiction.
Also in response to a question and scenario presented by Representative Stewart concerning automobile insurance and how it relates to a state employee’s health insurance plan, Commissioner Clark stated that if an individual was in an automobile accident the state would subrogate the claim by recovering the money from the automobile insurance company and this would be accomplished through a questionnaire from the insurance company. Representative Stewart indicated he felt there is a lot of waste and the state could save money on automobile accidents when the costs are charged to a state employee’s benefit plan rather than the private insurance company and the same with the filling of prescriptions when a state employee is involved in an automobile accident.
Commissioner Clark indicated that she would talk with Commissioner Nelson, with the Department of Employee Insurance in the Personnel Cabinet, to determine if the state has regular questionnaires to determine coverage in response to his concern. She also indicated that if a local pharmacy is having issues with payment by a health insurance company she would like to talk with the pharmacy to address the issue.
Responding to a question by Chair Arnold as to what impact the new healthcare law would have on small businesses, Mr. Nold stated a tax credit available to small businesses went into effect in January 2010 depending upon the amount of premium paid to cover their employees and that there are many implications from the new healthcare bill that does not directly relate to insurance and the full impact is not known at this time.
The meeting adjourned at about 11:20 a.m.