Interim Joint Committee on Banking and Insurance


Minutes of the<MeetNo1> 1st Meeting

of the 2015 Interim


<MeetMDY1> August 25, 2015


Call to Order and Roll Call

The<MeetNo2> 1st meeting of the Interim Joint Committee on Banking and Insurance was held on<Day> Tuesday,<MeetMDY2> August 25, 2015, at<MeetTime> 10:00 AM, in<Room> Room 149 of the Capitol Annex. Representative Jeff Greer, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Jeff Greer, Co-Chair; Senators Julie Raque Adams, Jared Carpenter, Chris Girdler, Christian McDaniel, Morgan McGarvey, Dennis Parrett, Dorsey Ridley, Albert Robinson, John Schickel, and Dan "Malano" Seum; Representatives Will Coursey, Ron Crimm, Mike Denham, Joseph M. Fischer, Jim Gooch Jr., Mike Harmon, Chris Harris, Dennis Horlander, James Kay, Dennis Keene, Thomas Kerr, Adam Koenig, David Meade, Michael Meredith, Russ A. Meyer, Brad Montell, David Osborne, Sannie Overly, Ruth Ann Palumbo, Ryan Quarles, Steve Riggs, Bart Rowland, Jonathan Shell, Kevin Sinnette, Fitz Steele, Wilson Stone, and Ken Upchurch.


Guests:  Russell Lay, Department of Insurance; Sarah Nicholson, Kentucky Hospital Association; and Mark Mangeot, Department of Corrections, among others.


LRC Staff:  Sean Donaldson, Erica Warren, Jonathan Scott, and Marlene Rutherford.


Approval of Minutes

Representative Keene moved that the minutes of the October 28, 2014, meeting be approved. Representative Denham seconded, and the minutes were approved without objection.


Proposed Merger of Aetna and Humana Insurance Companies

Co-Chair Greer indicated that there were certain matters that representatives of the two companies could not address because of impending federal and state approvals, such as any speculation on the approval process, comments on insurance transactions not related to their own, material matters relating to the merger that have not been disclosed publicly, and any part of the Department of Justice and state discussions or negotiations relating to the competitive nature of the business since Humana and Aetna remain competitors until the merger is closed; and any product offerings, rates, or provider contracts.


The committee heard statements and comments from Sharon Clark, Commissioner of Insurance, Fran Soistman, Executive Vice President of Government Services for Aetna, Inc., Russell Harper, Kentucky State Director Government Affairs, Aetna Insurance, and Joe Ventura, General Counsel and Corporate Secretary for Humana, Inc. on the proposed acquisition of Humana, Inc., a for-profit health insurance company whose headquarters are located in Louisville, Kentucky by Aetna, Inc., a managed health care company which sells traditional and consumer driven health care insurance plans, headquartered in Hartford, Connecticut.


Commissioner Clark indicated that the Department of Insurance would be performing an analysis of the acquisition in accordance with state statutes and regulations. In order to perform the analysis the department is permitted to hire, at the applicant’s expense, attorneys, actuaries, accountants, and other experts that may be necessary to assist the department in examining the merger but she feels that because of the expertise within the department that only two economists will be necessary.


In response to a question by Senator Robinson, Commissioner Clark indicated that the department would only be reviewing the form of the merger. The department will not be considering economic impact of the merger, such as job loss or loss to the tax base, outside of the limited analysis to prevent monopolies.


Mr. Soistman indicated that the merger between Aetna and Humana is different in that the merger would complement each other. Aetna’s strength is in the private commercial market and Humana’s market strength is focused on the government and Medicare Advantage market. He said that this is the largest transaction in the history of Aetna and that Humana would be a wholly-owned subsidiary of Aetna, Inc. Aetna is committed to the community and the Humana Headquarters will remain in Louisville, and be the headquarters for the new company’s government business. Mark Bertolini, the current CEO of Aetna, will remain the CEO of the new company. There will be no change in the Humana Board of Directors and both the Aetna Board and the Humana board will have to approve the merger transaction. He indicated that this merger would only cause a minimum of disruption to those clients served.


Mr. Ventura indicated that documents have been submitted to the Department of Justice for review.


In response to Representative Fischer concerning the private and government marketplace and the market share of each, Mr. Ventura indicated that he would be providing that information to Commissioner Clark and the Department of Insurance for evaluation. Mr. Soistman said that Medicare is seven percent of the market share.


Co-Chair Greer stated that the committee needs to understand that Aetna is committed to Kentucky and that it was understood that the government business headquarters would remain in Louisville. Mr. Soistman reiterated that Aetna is committed and that both entities are well grounded businesses. Aetna has been in business over 160 years.


Responding to a question by Representative Montell as to the costs and premium reimbursement to doctors and what would happen to the premiums for consumers in the acquisition, Mr. Soistman indicated that there would be a $1.25 billion in savings annually through the elimination of redundancies and the company was steering more toward a value-based provider reimbursement and transitioning away from a fee-for-service reimbursement. A value based reimbursement allows for more providers and competition.


In response to Representative Quarles and Senator Seum as to what the Humana name means in Kentucky and whether the name would remain after the merger, Mr. Soistman said that the name Humana was a powerful name in the Medicare Industry and would continue to be used by the new company and the Humana name preserved.


Mr. Soistman indicated that the second half of 2016 is the target to completion of the merger.


Responding to Representative Harris as to whether there would be an evaluation of each line of business to determine if there is a monopoly, Commissioner Clark stated that the department would be looking at each line of business in the review and then would review business region by region. She said that Aetna serves large markets and that Northern Kentucky would be reviewed closely because there are large insurance companies in that area.


In response to Representative Riggs concerning Aetna’s corporate responsibility, Mr. Soistman stated that the CEO of Aetna has made a social compact by voluntarily setting the minimum wage at $16.00 per hour for its employees which is both good for employees and the company because it lessens the turnover in the company.


Co-Chair Greer announced that the next meeting would be an out-of-town meeting, sponsored by Community Ventures of Lexington, at Marriott Griffin Gate Hotel in Lexington, with breakfast at 9:00 a.m. and the meeting at 10:00 a.m. A tour of various projects in the city and lunch will follow.


There being no further business, the meeting adjourned at about 11:00 a.m.