The 3rd meeting of the Interim Joint Committee on Banking and Insurance was held on Tuesday, October 23, 2001, at 10:00 AM, in Room 149 of the Capitol Annex. Senator Tom Buford, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Tom Buford, Co-Chair; Representative James Bruce, Co-Chair; Senators Julie Denton, David K. Karem, Marshall Long, Albert Robinson, Richard Sanders Jr, Larry Saunders, and Dan Seum; Representatives Paul Bather, Ira Branham, James Comer, Ron Crimm, Robert Damron, Mike Denham, Danny Ford, James Gooch, Dennis Horlander, Steve Riggs, Dottie Sims, Roger Thomas, Ken Upchurch, and Susan Westrom.
Guests: Carol Palmore, Secretary, Personnel Cabinet; Carl Felix, Personnel Cabinet, Prentice Harvey, and Brandon Emlen, State Farm Insurance; Greg Kosse, Kentucky Farm Bureau; and Bob Hearns, National Association of Independent Insurers.
LRC Staff: Greg Freedman, Emily Bottoms, and Jamie Griffin.
Senator David Karem asked that the minutes reflect that at the last committee meeting in September he stated that he would be glad to give his seat on the committee to Senator R.J. Palmer.
Representative Ron Crimm updated the committee regarding action taken at the summer meeting of NCOIL held in Chicago. He stated that the organization passed the NCOIL Property/Casualty Insurance Modernization Act.
Carol Palmore, Secretary, Personnel Cabinet, addressed the committee regarding the Commonwealth of Kentucky Public Health Insurance Program Annual Report. Secretary Palmore stated that in accordance with the provisions of KRS 18A.226(5)(b), enacted by the 2000 General Assembly as a component of Senate Bill 288, the document comprises the first annual report from the Kentucky Group Health Insurance Board to the Governor, the General Assembly, and the Chief Justice of the Supreme Court. She briefly reviewed the purpose, scope and process, and the executive summary of the report. She stated that Kentucky is unique in offering flexible spending accounts. She stated that the long term plan is to continue to provide an alternative healthcare flexible spending account benefit to individuals who waive health insurance coverage through the Commonwealth Group at the level currently in effect. She stated that the report recommends to continue to pay the full cost of individual healthcare coverage under the lowest cost Option A plan in each county, and to continue with the Commonwealth’s current policy of providing a specific minimum monthly defined dollar contribution to state employees. Also the report endorses continuing to provide only one Commonwealth health insurance contribution to each individual who is eligible to participate in the Commonwealth Group, including every eligible retiree who is also an eligible active employee, irrespective of his/her former or current employer. Individuals who qualify for more than one Commonwealth contribution must to decide which contribution he/she wishes to receive. However, the Board believes that the funds appropriated by the Commonwealth for employee/retiree health insurance should be restricted to use for employee/retiree healthcare benefits. Therefore, the Board recommended that the state recoup forfeitures from the healthcare spending accounts funded by the Commonwealth for those who waive health insurance, from all entities that participate in the Commonwealth Group and return these to the Commonwealth’s Public Employee Health Insurance Program, to the extent permissible by federal standards. Based on the 1999 and 2000 experience of state agencies, these forfeitures are estimated to be about $18 million in 2001.
She additionally stated that in order to make health insurance more affordable for employees’ dependents and to bring the Commonwealth’s program more in line with those of other states, the Board recommended that the Commonwealth subsidize the cost of dependent health insurance premiums, to the extent financially feasible without impacting the ability to provide single coverage under the lowest cost Option A at no employee contribution. The report recommended that the Commonwealth should also retain the implicit dependent subsidies currently present in the Commonwealth’s Public Employee Health Insurance Program as a result of the relationship between single and dependent premium rates. She stated that in regard to self funding, the Board recommended that the state should self fund its Public Employee Health Insurance Program only if it is highly likely that the risk it would be accepting would be offset by substantial cost savings, after taking into account not only projected claims, re-insurance premiums and third party administrator cost, but also the cost of additional Commonwealth staff required. She stated that the overall impact on the health insurance market in Kentucky must be considered, since the Commonwealth comprises approximately 20% of the individuals with insured healthcare benefits in the entire state.
Senator Marshall Long asked if we should be concerned about the Kentucky health insurance market. Secretary Palmore stated that it is something that should be considered. She stated that it would impact companies coming back into the state. She stated that something must be done regarding provider reimbursement rates if Kentucky wants more providers to enter the Kentucky Market. Representative Jim Bruce asked if Secretary Palmore could tell him the amount of Anthem’s reserves cited by the company at its recent buy out meeting. Secretary Palmore stated that she could not remember the exact amount, but it was millions. Representative Bruce stated that he did not feel like anyone should be worried about Anthem not making a profit.
Senator Marshall Long pointed out that local governments would be affected as demonstrated by Appendix B-1 of the report. Secretary Palmore stated that Appendix B-1 “Entities with Only Retirees Participating in Commonwealth Group” shows the number of active employees that work for counties and municipalities that have opted out of the group and the number of retirees in the Commonwealth Group. She stated 57,661 active employees opted out and 5,820 retirees participate. Senator Long asked if she knew the ages or sex of the 57,661 that opted out. She stated that she did not know.
Representative Susan Westrom asked what the cost would be to the counties and municipalities if the actives are brought into the group. Secretary Palmore stated that it would vary from county to county, but the cities and municipalities would most likely face increases in their premiums since they are currently insuring only their active employees who are generally younger and healthier than retirees.
Senator Richie Sanders asked why the University of Kentucky and the University of Louisville are not on this list. Secretary Palmore stated that they are self-insured and the state group does not have their retirees.
Senator Dan Seum asked if the University of Kentucky and University of Louisville have better insurance rates. Secretary Palmore stated that it would be hard to compete with the universities because they own their hospitals.
Senator Tom Buford recognized Prentice Harvey and Brandon Emlen, State Farm Insurance, Bob Hearns, National Association of Independent Insurers, and Greg Kosse, General Counsel, Kentucky Farm Bureau to discuss the rating of young drivers based on gender.
Bob Hearns, National Association of Independent Insurers(NAII), stated that two-thirds of young drivers killed are males. He stated that based on NAII data, the loss cost of young single male drivers in Kentucky is higher than that of young single females. It costs private passenger auto insurers about 16% more to offer liability protection to young male drivers than to young females. It costs 11% more to offer collision coverage. Overall, in terms of combined liability and collision coverage loss costs, male drivers under the age of 25 years are about 14% more risky than their female counterparts. Such a variance warrants higher rates being charged to the male group of drivers in this state. He stated that if gender were eliminated from the rate-making process then female drivers, who make up nearly half of the youthful driving population, would have an increase of 6.8% in their liability and collision premiums in order to subsidize the 6.1% decrease given to young male drivers.
Representative Jim Gooch stated that he hopes the data used by the NAII is up to date. He stated that he feels trends have changed over the years. Mr. Hearns stated that in terms of death and accident rates males are still involved in more accidents and deaths than the female teenage driver population. Greg Kosse, Kentucky Farm Bureau, stated that boys are involved in more fatal accidents and in more costly accidents. Brandon Emlen, State Farm Insurance, stated that the data figures are reviewed annually.
Representative Paul Bather asked what the underlying causes are that make males more risky. Mr. Emlen stated that the companies look at risk factors. Representative Bather asked if there has been any action taken to prevent these outcomes. Mr. Hearns stated that the 1996 Graduated Driver’s License law passed by Kentucky has gone a long way toward improving this situation.
Representative Susan Westrom asked if the NAII tracks accidents that involved drugs or alcohol. Mr. Hearns stated, “yes”. Representative Westrom stated that she feels this information would be very helpful to communities dealing with teen addictions.
Representative Steve Riggs stated that he feels insurance companies have a duty to teach safe driving.
Representative Ron Crimm stated that he feels that the discount should be greater to young drivers who take driver’s education courses.
Prentice Harvey, State Farm Insurance, stated that State Farm is involved in many educational programs and grant programs.
Representative Ira Branham asked if the Personal Injury Protection (PIP) payout is the same for boys as for girls. Mr. Emlen stated that it is fairly comparable. Representative Branham stated that he has received complaints that insurance is higher in Eastern Kentucky . Mr. Emlen stated that rates are based on territory factors, such as roads, repair costs, and litigiousness.
Representative Bob Damron stated that even though the Graduated Drivers License Law has been effect for several years, there really has not been a significant change in the statistics or a drop in auto insurance rates. Mr. Hearns stated that he believes the number of accidents and deaths have gone down. Representative Damron stated that it seems that the gender rating is discriminating based on sex. Mr. Hearns stated that the national data shows males are involved in more accidents. Representative Damron asked if the insurance companies would raise the rates of African-Americans if they were involved in more accidents. He asked if the citizens of Kentucky are being treated fairly and should the legislature do something to change the law regarding gender rating. Representative Damron asked if the auto insurance industry would object to being subject to the Kentucky Civil Rights law. Mr. Hearns stated that he feels the citizens are being treated fairly. Mr. Harvey stated that if the General Assembly passes a law that prohibits gender rating they would comply, but the ultimate result would be other drivers subsidizing the cost of young males drivers.
Senator Tom Buford stated that not wearing a seat belt is currently a secondary offense. He asked if the insurance companies present would support the law if it were to become a primary offense. Mr. Harvey, Mr. Hearns, and Mr. Emlen stated, “yes”.
Representative Jim Gooch stated that he feels this has been a good discussion, but hopes that it ends here. He stated that he feels if the gender rating is abolished it will not stop there.
Representative Jim Bruce made the motion to adjourn, second by Representative Jim Gooch, and the meeting adjourned at 11:50 a.m.