Interim Joint Committee on Banking and Insurance


Minutes of the<MeetNo1> 1st Meeting

of the 2003 Interim


<MeetMDY1> June 24, 2003


The<MeetNo2> 1st meeting of the Interim Joint Committee on Banking and Insurance was held on<Day> Tuesday,<MeetMDY2> June 24, 2003, at<MeetTime> 10:00 AM, in<Room> Room 149 of the Capitol Annex. Senator Tom Buford, Chair, 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, Ernie Harris, Daniel Mongiardo, Albert Robinson, and Dan Seum; Representatives John Adams, James Comer, Brian Crall, Ron Crimm, Robert Damron, Mike Denham, Ted "Teddy" Edmonds, Danny Ford, James Gooch, J. R. Gray, Dennis Horlander, Don Pasley, Steve Riggs, Arnold Simpson, Brandon Smith, Roger Thomas, Tommy Thompson, Ken Upchurch, Susan Westrom, and Rob Wilkey.


Guests:  Melodie Doom-Schrader, Jack Bender, Shannon Turner, representatives of  the Kentucky Association of Health Plans; and, Andy Downs, Kentucky Employers Health Benefit Coalition.


LRC Staff:  Greg Freedman, Rhonda Franklin and Jamie Griffin.


The minutes of the January 28, 2003, meeting were approved.


Melodie Schrader addressed the committee regarding the factors that are impacting the cost of health care.    She stated that it is a shared responsibility.  She stated that health insurance carriers, employers, hospitals, physicians, and consumers must work together to address the rising cost of health care coverage.  She stated that there are several factors responsible for the increase in health care coverage: technology, an aging population, lifestyle choices, increasing demands for new treatments, direct to consumer advertising of pharmaceuticals, cost shifting, legislative mandates and fewer managed care cost saving tools.  She stated that according to a report from the Kaiser Family Foundation coverage for Kentuckians is as follows:  Employer 2,385,300, Individual 112,420, Medicaid 467,300, Medicare 485,900, and Uninsured 518,620.  She stated that the factors increasing premiums are litigation and risk management, increased consumer demand, legislation, rising provider expenses, drugs, medical devices and other medical advances, and general inflation.  She stated that prescription drug expenditures have been on a steady rise since 1980.  She stated that health expenditures represent the largest sector in the United States economy.  She stated that health care in Kentucky from 1980-1998 has increased by the following percentages:  hospital 365%, physicians 475%, and drugs 450%. 


Shannon Turner stated that legal actions, class action lawsuits and large jury awards increase risk and administrative costs for both providers and private payors.  Rising malpractice suits are causing physicians to practice defensive medicine, often ordering additional or unnecessary tests.  She stated that median jury awards for medical malpractice were up nearly 43 percent from 1990 to 2000.  The median award in 2000 was $1 million, double the 1996 amount.  She stated that the quarterly Journal of Economics has estimated that defensive medicine costs an additional $50 billion per year.  She stated that the cost of malpractice insurance is increasing for providers. Increases in malpractice premiums averaged 11 to 17 percent in 2000, and around 10 percent in 2001.  She stated that mandated benefits increase health care costs.  There are 1,500 existing mandates nationwide.  In 2001, federal and states combined, there were 550 new mandates introduced, with 65 enacted.  Kentucky is no exception to increases in mandated benefits.  In Kentucky mandated benefits that must be a part of employer based coverage include: bone marrow transplants for breast cancer treatment, cochlear implants for hearing loss, mental health parity, and minimum maternity hospital stays.  She stated that studies show that mandated coverage for chemical dependency treatment increased costs by 9 % in affected states.  Administrative costs as a result of regulatory requirements also contribute to the escalating cost of health insurance.  She stated that the Health Insurance Portability and Accountability Act (HIPAA) will contribute significantly to overall health care costs.  She stated that the law calls for rules that standardize administrative and financial transactions, as well as imposing stringent security and privacy requirement on the use and disclosure of individuals health information.  HIPAA affects health insurers, hospitals, physicians, and self-insured group health plans, requiring significant investments of time and money.  She stated that the industry should expect more than $40 billion in add-on costs over a 5 year period.


Jack Bender stated that increased consumer consumption is expected to place increased demands on the health care system, and shows no sign of slowing down.  Consumers are performing self diagnosis and seeking specific treatments, leading to additional physician visits and procedures.  Current benefit designs have insulated consumers from the true cost of health care services and health care coverage.  He stated that the driving forces of  design changes are employers, consumers, rising health care costs and a weak economy.  He stated that consumer driven plans engage consumers, increase health plan choices for employers, create a potential for long term reduction of medical cost trends and raise employee awareness of employer health expenditures.  He stated that consumer strategies are cost sharing, multiple tiers, savings accounts, and fixed contributions.  He stated that consumer driven detractors are that consumers will weigh health status against out of pocket budgetary constraints in selection of benefits, while maintaining choice, and cost sharing has little impact on the small percentage of patients who consume the largest amount of health care.


Representative Steve Riggs stated that he doesn’t think that consumers are insulated to the cost of health care.  He asked what providers can do to educate consumers regarding preventive health care.  Mr. Bender stated that even though there is more cost sharing going on among consumers, he still feels that consumers are insulated from larger health care costs.  He stated that consumers can contact companies regarding  smoking cessation programs and weight management.  Representative Riggs stated that he feels it is eventually going to be healthy vs. sick, and that would be discriminatory.  Mr. Bender stated that you cannot do that now.  You have to look at a group record as a whole and can adjust rates for the group, not an individual.


Melodie Schrader stated that the national trend shows that employers are getting more involved with consumers, sending newsletters suggesting lifestyle changes, and name brand vs. generic drugs. 


Representative Jim Bruce asked how much it was costing companies to provide the reports required by the Department of Insurance.  Ms. Turner stated that she did not have a cost estimate.  He asked staff to contact the Department of Insurance and ask if it was necessary to require some of the reports quarterly.


Senator Daniel Mongiardo stated that he feels that there is a misunderstanding of what happens with cost and profit regarding hospitals and doctors.  He stated that most hospitals do not make a 3 percent profit per year.  He stated that reimbursements to doctors are not actually up.


Representative Danny Ford asked about problems with delinquency and fraud and how Kentucky compares to the national average.  Mr. Andy Downs stated that Kentucky is on the low end.


Senator Dan Seum stated that there are companies in Louisville that make $600,000 per year profit and refer to themselves as non-profit.


Andy Downs with the Kentucky Employers Health Benefits Coalition (KEHBC) addressed the committee.  He stated that the employer-based health benefit system is at risk.  He stated that employers are the number one purchaser of health benefits and must be part of the solution.  He stated that insurers and health providers are partners with vested interests and that innovation is a joint responsibility.  He stated that the average annual increase in employer health care costs is up from 2.1% in 1995, to 17.2% in 2002.  He stated that employers have several options: they can drop coverage, absorb costs themselves, share premium costs with employees, reduce benefits, seek a strategy combining elements of these options, or become involved in changing the system.  He stated that for every dollar spent on health insurance, 85-92% is paid to a health care provider.  He suggested reducing the per unit cost of care and reducing unnecessary utilization as cost containment measures.  He stated that high quality care must be maintained.  He stated that the KEHBC offers the following recommendations:  business representatives be given a prominent seat at the table when the General Assembly discusses and writes health care legislation and regulations;  the General Assembly focus on creating an environment that will allow better access to health care information for all of the Commonwealth’s citizens; users of the health care system behave as responsible consumers by becoming informed, making wise choices based on cost as well as benefit; and, that consumers consider the ramifications of their actions on their health and cost of the health care system.  He stated that KEHBC also makes the following specific recommendations:  increase use of information technology; reduce administrative transaction cost; increase information to reduce fraud and duplication; make cost and quality information available; review all regulation and statutes relating to insurance and providers to insure they do not inhibit innovation; educate consumers; and, provide information regarding disease management.


Representative Ron Crimm stated that he doesn’t feel that the average consumer doesn’t care unless they are touched personally.


Representative Brian Crall stated that he feels you have to control through encouragement and incentives.


Representative Mike Denham asked what would be the top three things the legislature could do to reduce health care costs.  Mr. Downs stated that he wasn’t prepared to comment on that at this time.  Ms. Turner stated that inefficiencies would be a good starting point.


Representative Brandon Smith stated that as a small businessman he has seen fraud first hand.  He stated that it has become very frustrating for the small business trying to cover their employees.


Chairman Tom Buford stated that the July meeting date will be changed and committee members will be notified.  He stated that at the July meeting the committee  will discuss House Resolution 163, sponsored by Representative Joe Barrows in the 2003 Legislative Session.


With no further discussion the meeting adjourned.