Interim Joint Committee on Banking and Insurance


Minutes of the<MeetNo1> 1st Meeting

of the 2001 Interim


<MeetMDY1> August 28, 2001


The<MeetNo2> 1st meeting of the Interim Joint Committee on Banking and Insurance was held on<Day> Tuesday,<MeetMDY2> August 28, 2001, at<MeetTime> 10:15 AM, in<Room> Room 149 of the Capitol Annex. Senator Tom Buford and Representative James Bruce, Co-Chairs, both presided over the meeting.  Senator Buford called the meeting to order, and the secretary called the roll.  

Present were:


Members:<Members> Senator Tom Buford, Co-Chair; Representative James Bruce, Co-Chair; Senators Lindy Casebier, Julie Denton, Ray Jones II, David K. Karem, Marshall Long, Larry Saunders, and Dan Seum; Representatives John Adams, Sheldon Baugh, James Comer, Brian Crall, Ron Crimm, Robert Damron, Joseph Fischer, Danny Ford, James Gooch, Dennis Horlander, Steve Riggs, Dottie Sims, Roger Thomas, Ken Upchurch, Susan Westrom, and Rob Wilkey.


Guests:  Gail Louis, Maresa Fawns, Ken Houp, John W. Thompson; Peter Hasselbacher, Beth Wilson, Bryan Alverez, J. Gould, Crestine Alverez, Sandra Shroat, P. Gold, Bert May, Matt Hall, Shawn Crowd, John McCarty, Dan Alton, John Brazel, John Wilkerson, Namrata Sen, Mike Ridenovol, Ronny Pryor, Steve Bolton, and Steve Shannon.


LRC Staff:  Greg Freedman, Emily Bottoms, and Jo Ann Paulin.


Senator Buford held a moment of silent prayer for deceased former member Senator Kelsey Friend.  Senator Buford then turned the meeting over to Chairman Bruce.  Chairman Bruce introduced Commissioner Janie Miller, of the Department of Insurance, who gave an overview of the Kentucky Access and the Individual Health Insurance Market in Kentucky.


Commissioner Miller had with her Fred Nelson, who is the Director of the Kentucky Access Program.  Commissioner Miller followed through the document that was distributed.


Senator Denton asked about the fund reduction of $10.1 million.  She asked if it had been taken out of the program and how did Commissioner Miller feel that was going to impact the program especially in light of them venturing out two or three years as to what the claims expense is going to be.  She also asked if they had estimates as to what the total gains and losses will be for those years.  Commissioner Miller said they had looked into that and recognizing that it is very, very early in the program they would have rather not lost this money, but realized the seriousness of the short fall, and in a time of crisis you have to come up with some method of balancing the budget.  She stated that they felt comfortable about it, given the scenario they have, with significant and available cash to operate the program.  She said that they have made no plans to alter their advertising and feel they can handle enrollment as planned.  She stated that what will ultimately determine the long term effect is going to be whether or not they have appropriately estimated there will be three to five thousand people in the pool and the estimated the cost per person.  That is going to have a more significant effect on the program over the long term than the loss of the $10.1 million in this year. 


Senator Denton asked what the claims expense without the $10.1 million would be over the next several years and what would be the gain or loss projection be over those same years. Commissioner Miller stated that she did not have those figures with her, but obviously those do decline and have done that very roughly.


Senator Denton said she agreed that the numbers are only as good as the data they have in their assumptions, but she did think that the $10.1 million could be a critical piece in that.  Even if the funds would not be spent for several years, the interest that would accrue off the $10.1 million will be an impact to this particular program.  Senator Denton asked the permission of the chairman to ask the Department to figure what the net gain and loss would be with and without the $10.1 million over the next several years.   She also asked for the net expenses, claims, and all the information that is listed for 2001 and 2002 figured in this information.


Representative Crimm said he felt an obligation to state that a few months ago when Kentucky Access was set up, the legislature did it with the understanding that it was on strong financial principles.  They put the program together in a way they felt it would work.  He stated he recalled speaking in defense of this program which only passed by one vote and that he is very concerned about the movement of this $10.1 million.  He stated that he wanted to go on record as being opposed to the movement of this money and he knew what the spin was on the movement.  He said he felt there is a very small chance that the Department will ever see that money again and he did not realize that it could be used in the general fund.  He stated he did not realize that it had to be spent in one fiscal year and hopes that it does not destroy this program. 


Commissioner Miller stated that Beth Jurek, Deputy State Budget Director, with the Governor’s Office For Policy and Management, was present to answer the questions about the $10.1 million. 


Ms. Jurek said that Director Jim Ramsey wanted to be here but was not able to attend today.  She stated that they have worked with the Department of Insurance and did not make this proposal lightly.  She stated that they understand the concerns that Representative Crimm has expressed  and felt based on the preliminary projections that Kentucky Access would be doing well for the next biennium.  She said a lot does depend on the claims that are experienced by the program.  Their preference would be not to have to make any reductions in any programs.  Unfortunately, they find themselves in the position of having to deal with a $326 million shortfall.  They are sensitive to the issues raised here.  Their concern down the road is that they want to make sure of the viability of the program because they remain committed to it.  She stated that several states are experiencing budget shortfalls much more severe than Kentucky is experiencing. 


Commissioner Miller stated that she would plug future appropriations.  She said the Department can tell companies considering returning to Kentucky, that, there had been a reduction in one year of $10.1 million, but, for budget discussions coming in the future, it will be important that that level of funding that was initially established is maintained.  If this cut is reflected in future funding levels then there are serious, significant funding problems with regard to Kentucky Access.  She stated that she would suggest that everyone acknowledge the cut but also acknowledge that it has not changed their ability to service Kentucky Access enrollees today, and it is too early to project future effects. She stated that they will comply with the Senator’s request, but, it has to be understood that they are doing this based on seven months of enrollment where they have only paid out $300,000 dollars of medical claims.  She said that it is too early to say this is the undoing of this program. 


Representative Gooch stated that he wanted to take this opportunity to make the condemnation of the withdrawal bipartisan.  He said that he knows that there is a budget shortfall and that there have to be cuts made, but he cannot imagine that this $10 million must be removed from this program.  He said that a few years ago Kentucky Kare had $120 million in reserves and in three years it was gone.  This small amount of money was not a large enough amount that it should have been touched.  He said that if you look at the $64 million  in revenue, and you take away the $38 million that was a carry over, and take away the $8 million that was left, then there is barely enough left to cover expenses.  He stated that this puts in question the integrity of this program.


Commissioner Miller wanted to address these statements by saying that the $9.4 million is only one half of one percent, and in fact she has somewhat looked at that ability to access insurance carriers up to one percent.  They could, if they had to, assess another $9.4 million.  They are reluctant to do that because they have never made a second assessment, but they do understand from insurance carriers that have returned to the state that as long as the assessment stayed within the one percent range that that is not different with regard to what you find in other states where assessments are made.  While they would prefer not to make that assessment, she said that she did not think that it would deter carriers coming back into Kentucky. 


Representative Gooch said he and others had hoped that the $34 or $35 million tobacco appropriations would have been enough for the program.  He stated that if risk pools in other states were funded properly, they often carried themselves.  He asked if the  Department believed that the funding done initially was enough or did they think there would have to be another $35 million in the next biennium.


Commission Miller stated that several legislators have asked that same question and told her that their expectation had been that after the initial seed money of $35 million over the two years, that some of that seed money would be reduced for future years.  She said that the Department had never approached funding the program in that manner.  Assuming they had good estimates of the citizens that would go into the pool of three to five thousand, and again that is an unknown, but assuming that was in the ball park, they had actually come up with this funding composite group of sources of funding as a funding level.  Recognizing that at some point down the road they would max out or have the maximum number of people in the pool and it would be a sufficient funding level to sustain the program.  So they have never anticipated that the seed money would ever materially go away.  


She said the initial schedule of the tobacco settlement funds, over a 20 or 25 year period, is scheduled to decline somewhat.  But it does not decline significantly.  That is just a schedule and the funding may or may not come in according to schedule. In fact, if that schedule does not materialize, they may be looking at other issues down the road.  She said some of the experiences that other state pools are showing is that one to two percent of the individual insured market will end up in a risk pool program.  If these estimates are more correct, then Kentucky’s numbers would be close to three thousand.  If that is the case then they have assumed estimates going up to five thousand.  There would be an additional availability if the numbers never achieve the full amount.  She said that funding level is what is important.  She said that the funding level must be maintained while going forward until there is better data to project  future needs of the program.


Senator Marshall Long stated that we must be careful and realize that the state is projecting a $250 million dollar shortfall in the next biennium.  He stated that when that point is reached, other funding sources must be found.  He said this is one of them, and the Legislature has taken money out of their budget.  There must be significant program adjustments if something is not done.  He said he did not see any one standing in line to raise taxes.  He said that he did not feel that the messenger should be killed when he tells you that $10 million dollars will be taken.  He said that $120 million has been taken out of the “Rainy Day Fund” which is going to raise the cost of all the bonds that have been issued, going to raise the interest rate, and going to lower the bond rating.  All of these things the state went through in 1994 and it was a very unpleasant experience.  He said that we are heading in that direction again without significant program changes.  He stated that there will be cuts more significant than $10.1 million before we get through.


Representative Joe Fischer stated that the 2002 estimates show a 40 percent cut in funding to Kentucky Access and he wondered how many other programs have suffered a 40 percent cut in their funding.  Ms. Jurek said she would have to go back and look at the agency budgets.  She said that agencies are taking cuts out of money that they will spend this year.   She stated that they hope this is a one time reduction.  So while this is a significant reduction to this program, reductions are also significant in other agencies because they do not have large carry forwards.  She stated that  dollars are being taken out of their budgets this year, which means there will be vacancies that cannot be filled and programs that they may have to scale back.  It is an unfortunate situation and while the budget was balanced in fiscal year 2001, with relatively no pain, there were really no reductions that were visible to the public at large.  She said that this year they are starting to get into areas where members of the public will see reductions to service.  She said she could go back and look to see if there is any other area that is taking a comparable cut.  The early childhood budget is another area where they did not spend all of their first year appropriations.  The money was carried forward and they will also lose $10.1 million from their budget.  They are trying to look at places where they do not have to reduce services this year if they do not have to.  Hopefully, the economy will turn around and they will be able to offset those.


Representative Fischer asked if the Kentucky Access Program allows or requires some reserves to be set for these losses that are projected in the future.  Commissioner Miller stated that there is no statutory requirement that has been set up to reserve a certain amount.  In essence, what they have talked about internally is using some actuarial assumptions to set up some sort of a contingency fund, but right now it is just available in the cash available to operate the program.  She said that is something they would consider in making projections.  In regard to Senator Denton’s request, they would look at the amount of money that would be needed to hold in reserve to cover a potential million dollar claim that may occur. 


Representative Fischer stated that most insurance companies would see the $38 million carry over as partial reserves for future claims.  Commissioner Miller said yes, and that is, in essence how they are looking at it.


Representative Bob Damron asked Commissioner Miller why the Department went with Anthem and not directly with OASYS to administer Kentucky Access.  Commissioner Miller stated it was because in the RFP, they gave preference to companies that could provide networks.  Because of this, Anthem actually went out and garnered its own partner.  OASYS is a subcontractor and it was considered that the actual bidder was Anthem. 


Representative Damron wanted to now how long the state was locked into Anthem. Commissioner Miller stated that according to the statute you cannot contract past the biennium.  They can decide to continue the contract after the biennium.  She stated that the contract was bid in such a way to secure a contractor up to four years hoping that contractors knowing that they would get business for four years would actually lower cost. 


Representative Damron asked if Anthem owned OASYS.  Commissioner Miller said no, there is no connection.  


Representative Damron said he questioned it because it looked like a double fee being paid to somebody.  He said that last year the committee heard from several disabled people who were buying health insurance under the GAP program but they are not eligible for Kentucky Access.  They are subject to the dumping process that is included in the legislation that allows Anthem and Humana to raise their rates dramatically on those individuals.   He said that Commissioner Miller told him last year that if he held off on that piece of legislation that she would look at correcting it.  He asked what movement was being taken to take care of these folks who are disabled but not eligible to go into Access.


Commissioner Miller stated that it is correct that it particularly affects disabled, Medicare beneficiaries that need the drug coverage.  She stated that the Medicare program does not provide drug coverage.  The Department did look at this and addressed it with their health insurance advisory council.  Some preliminary work has been done to get a sense of how many people were in Anthem and Humana’s individual book of business that might be in this situation.  She said that the number that she got back was four to six hundred people in that particular predicament.   She said she did not know if they had any ability short of legislation to actually to go in and open up the program, but she did point out that this is one of the issues that has been raised that she considers an ongoing issue with the program.  She said there are 11 other states that offer a Medicare supplemental benefit under their risk pool coverage.  It is actually rated and priced separately because the cost utilization is far different.  She said they would need some statutory change to offer a Medicare type benefit to address that issue.


Representative Damron asked if that could be done and still meet the provisions of HIPAA and other provisions.  Commissioner Miller stated that apparently it does because other states are doing it, but she is not sure how they are doing it.


 Representative Damron said he would like for Commissioner Miller and her staff to work with him on getting that done.  He said he sees this as a significant problem in Kentucky Access.  He said that $10 million dollars is a lot to this program but it is not going to make or break Kentucky Access five years down the road.  He said that the problem he sees with Kentucky Access is that they continue to have stagnant dollars coming in from the tobacco surplus funds and continued increasing health care costs, which are increasing at the rate of  10 and 15 percent.  He said he sees a death spiral in the wrong direction and there is going to be a major problem funding Kentucky Access in five years and especially if we have the utilization that the Cabinet is proposing.  It has nothing to do with the $10 million.  He stated that he hopes that they do not try to blame the Governor’s office for taking ten million dollars up front when this thing does not work very well five years down the road.  He said the Governor’s office did what they thought they had to do and, as it was stated earlier, early childhood development took a ten million dollar hit as well and that is money that could have been used to take care of the children of this state.  He said he is not in favor of that cut either, but when you have the kind of shortfall they have to make cuts and he does not hold them accountable for that. 


Senator Ray Jones asked the Commissioner what steps are being taken to try to expand coverage or the number of enrollees in eastern Kentucky, given the fact that only about 16 percent of the Kentucky Access applicants are from eastern Kentucky.  Commissioner Miller stated that they have just gotten the county level data within the last 30 days and they are going to look at those counties that have very low or no enrollment and target specific mailings to agents.  She stated that they have found that agents are the first contact some people have trying to buy coverage in the individual market.  She said it is important to make sure they understand that they should be referring individuals to the Kentucky Access and that there is a one time fee of $50 if they assist someone in completing the application.  She stated they will increase their advertising effort.  Radio advertising tends to be a little more productive.  They get more inquiries after radio advertisements than if they do general print advertising.  She said some print advertising would be done.


Senator Jones asked if brochures had been placed in all the physician offices across the state.  Commissioner Miller said not yet. 


Senator Jones asked if it would be feasible to have a program where members of the Department go to physicians’ offices and work with officer managers and office staff.  He stated that those are the folks who are probably seeing the people who are uninsured and would be eligible for this program and are receiving health insurance from other sources.  He said that maybe they could work to orient these people and to direct people to Kentucky Access.  


Senator Buford assumed the chair and thanked the Commissioner and her staff for their presentation, time and diligence in answering the committee’s questions.


Senator Buford introduced Secretary Carol Palmore of the Personnel Cabinet.  Secretary Palmore gave an overview of the 2002 state employee health insurance contract and then agreed to respond to questions.


Representative Ken Upchurch stated that in Secretary Palmore’s presentation he noticed the age groups and the cost of insurance going up and he knew that a few years ago they allowed municipalities to opt out of this program.  He asked if it would be cheaper on everyone in the program if we would allow them to come back in. 


Secretary Palmore stated that it was her opinion that if an employer is going to have his retirees in our group then that employer needs to have all the actors in the group to offset the cost of those retirees.  She stated that they would certainly like to see legislation in the 2002 Session that would do one of two things: if you do not want your actives in our group then you need to bear the cost of the actuarial cost for your retirees,  otherwise you need to bring your actives into the group.  That would be cities, counties, local political subdivisions and regional universities.


Representative Upchurch asked if they would be presenting legislation.  Secretary Palmore stated that they would be working on that and asking for sponsors for that legislation. 


Representative Upchurch stated that the Governor signed an executive order putting state employees under a local union.  That decision bears some debate but he has had some state highway employees that have been coming to him and telling him that a union says they can get health insurance for $45 a month.  He asked if she was aware of this, and if so how is this possible.


Secretary Palmore stated that she had not heard that, and asked where they were getting it for $45 a month.  Representative Upchurch stated it was from the union people.  He said that from what he understands the union is coming to them and saying that they would like for them to sign up and by the way you can get health insurance for $45.  Some are saying no at first that they do not want to sign up with the union, but then they are told they can get health insurance for $45 a month, and then the first thing they do is sign their union card.  He said his local employees are telling him this and he did not know anywhere you can get health insurance for $45.  Secretary Palmore stated that she would be interested in looking into that because they would love to be able to provide employees insurance for $45 a month.  Representative Upchurch stated he found it unbelievable, but the employees were swearing to him that if they sign up with the union they get insurance for $45 a month.  He said he did not understand the rationale behind $45 a month insurance when we have insurance that is costing so much more.   Secretary Palmore stated that they would work with the Labor Cabinet and see what they can find out and answer him specifically.


Senator Buford called Ms. Gail Louis to the table.  She is from Boyle County and said she was here on behalf of the state employees in Boyle County.  They are concerned about the choices made available to them.  She stated that they have no access to an HMO that will cover their local hospital and she feels there needs to be more choices for their area.  Senator Buford asked if there is any hope of  change for Boyle County.  Secretary Palmore stated that they tried to avoid this situation.  She said that carriers can still enter into a contract with Ephraim McDowell Hospital and she is keeping in touch with the parties involved. 


Ms. Louis stated that most state employees in Boyle County have CHA, but CHA is not an option for 2002.  She asked if CHA just chose not to participate in 2002.  Secretary Palmore stated yes.


Senator Buford asked if CHA gave a reason.  Secretary Palmore stated that they did not give a reason, but they are offered in fewer counties in 2002 than 2001.  She stated that the committee should probably ask CHA about their reasoning.


Representative Brian Crall stated that he felt the committee should request that CHA appear at the next meeting.  Senator Buford stated that the staff would contact them and ask them to appear.  Representative Damron stated that the best thing would be for Bluegrass Family Health to contract with Ephraim McDowell.  Secretary Palmore stated that she is doing everything she can to make that happen.  Representative Damron stated that he felt that a representative from Ephraim McDowell should also be invited.  Senator Buford stated that the staff would also contact them and ask them to attend the meeting.


The meeting adjourned at 12:00 p.m.