Call to Order and Roll Call
The 2nd meeting of the Interim Joint Committee on Banking and Insurance was held on Tuesday, August 22, 2017, 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 Bart Rowland, Co-Chair; Senators Julie Raque Adams, Rick Girdler, Christian McDaniel, Morgan McGarvey, Dennis Parrett, Dorsey Ridley, Albert Robinson, John Schickel, and Dan "Malano" Seum; Representatives Will Coursey, Jim DuPlessis, Joseph M. Fischer, Jim Gooch Jr., Jeff Greer, Dennis Keene, Adam Koenig, Chad McCoy, Michael Meredith, Steve Riggs, Scott Wells, and Addia Wuchner.
Guests: Charles Vice, Commissioner, Kentucky Department of Financial Institutions; Tom Stephens, Secretary, Kentucky Personnel Cabinet; Jenny Goins, Commissioner, Kentucky Department of Employee Insurance; and Joel Allumbaugh, Foundation for Government Accountability.
LRC Staff: Sean Donaldson, Jessica Sharpe, and Dawn Johnson.
Minutes
A motion by Senator Parrett and second by Representative Wells to approve the June 27, 2017, minutes carried by voice vote.
Update on State of Kentucky Financial Industries
Commissioner Charles Vice discussed proposed legislation for the 2018 legislative session relating to the Kentucky Department of Financial Institutions (KDFI). The first, a consumer loan act, is a modernization bill that will allow KDFI the same regulatory tools used for other industries. Currently, the primary regulatory tool is license revocation, a worst case scenario. The second, mortgage services legislation, will establish a de minimis for registration of companies that service limited numbers of loans in Kentucky.
Commissioner Vice provided an update on trends in the banking industry. A significant concentration of financial power into a few financial institutions. He spoke on the condition of state banks and how they perform compared to surrounding states and nationally. Commissioner Vice reported on recent economic investments and job creation in Kentucky and spoke on current trends in the state’s housing market.
Commissioner Vice outlined the topics of discussion for the upcoming 2017 Community Banking in the 21st Century Research and Policy Conference.
Commissioner Vice said that KDFI has recently implemented a red tape reduction initiative and advocated nationally for right-sized regulation, qualified mortgage status for portfolio lending, and simplified capital rules for community banks.
Representative Meredith said flexibility in small business lending by community banks is important for their success.
Responding to Senator Parrett’s question Commissioner Vice said Dodd-Frank compliance regulations have resulted in significant financial and opportunity costs to banks.
In response to Representative DuPlessis’s question Commissioner Vice said barriers including Dodd-Frank regulations, net interest margin reductions since the 2008 recession, and higher capital requirements have significantly reduced the number of new community banks. Credit unions have been more successful because they are membership based and are focus on consumer-oriented lending.
Senator Ridley asked that KDFI provide the number of national banks and federal credit unions in Kentucky.
In response to Senator Ridley’s question, Commissioner Vice said most nondepository lending institutions that provide “quick” loans have an “originate-to-sell” business model to sell either to a financial institution or a company that packages collateralized mortgage obligations and mortgage-backed-securities for sale to investors.
Responding to Senator Seum’s question Commissioner Vice said in the loan market, financial institutions chose their level of risk.
Healthcare Transparency in Kentucky
Secretary Tom Stephens of the Kentucky Personnel Cabinet said the Kentucky employee health plan, which serves over 265,000 members, has been largely successful. He said it is a great health insurance plan that is a workforce retaining tool.
Commissioner Jenny Goins of the Department of Employee Insurance explained the Vitals SmartShopper program. The programs allows members to choose low cost, high value healthcare options. Members receive incentive checks for choosing low cost healthcare options. Since 2013, the program has saved the state $10 million. Employees have received $1.5 million in incentives. Commissioner Goins reviewed the demographics of participants and gave examples of cost savings. She noted the importance of marketing the Vitals SmartShopper program during open enrollment, at benefit fairs, and in targeted campaigns.
Responding to Chairman Buford’s questions, Commissioner Goins said a participant can call or visit the Vitals SmartShopper website to find area healthcare providers. The program does not make exceptions for out-of-network providers. It is most likely that in-network providers would be the least expensive because they have negotiated a lower rate with Anthem.
In response to Senator Ridley’s questions Commissioner Goins said that even though Anthem has negotiated service provider rates, members can cost save when comparing hospitals to free-standing facilities, for example. Secretary Stephens said communicating with participants and would-be participants is the single biggest challenge for the agency. It can be difficult to get the message out to everyone.
Joel Allumbaugh, Senior Fellow, Foundation for Government Accountability (FGA), a Florida-based nonprofit think tank on healthcare and welfare reform initiatives, commended Kentucky on its state employee health plan. There is a large variance in healthcare costs and, increasingly, consumers are paying a significant amount of health care expenditures out-of-pocket with much higher deductibles. This is most common for those who have health insurance through small employers and the individual market. Provider consolidation is driving referral patterns. In its study, FGA concluded that three things are needed: actionable transparency at the consumer level, incentives for enrollees, and out-of-network patient choice. Mr. Allumbaugh reviewed recent reforms instituted by other states.
Mr. Allumbaugh said it was necessary for Dr. Flaspohler to leave before making his presentation.
Responding to Representative DuPlessis’s question, Dr. Allumbaugh said Vitals SmartShopper has been studying how to apply the incentive model to the Medicaid program. Dr. Allumbaugh thought this could be implemented.
In response to Representative McCoy’s questions regarding transparency, Mr. Allumbaugh said pharmaceutical costs have been a point of interest recently and should be addressed, given that a large portion of health care spending is on pharmaceuticals. Hospitals should have the ability to provide enough information on all costs relating to a medical procedure for consumers to make informed choices.
Responding to the Chairman, Mr. Allumbaugh said surprise billing has not been studied by the FGA but it will be. Other states have expressed concern as well.
In response to Representative Riggs’s questions Commissioner Goins said last year $246,000 in incentives was paid to members. Representative Riggs asked for the key incentive ratio. The commissioner said that members also experience out-of-pocket cost savings as well as the incentive program. Representative Riggs suggested a set incentives ratio for maximum benefit.
In response to Representative Wuchner, Commissioner Goins said increased participation rates are a direct result of increased marketing.
Responding to Representative Wuchner’s questions, Mr. Allumbaugh said two major challenges to move forward are the logistics on the insurers’ side and roadblocks by larger entities in making healthcare more affordable. Lower cost healthcare does not correlate to substandard healthcare.
Chairman Buford said that healthcare is over 50 percent of the pension cost for state employees. Responding to Chairman Buford’s question, Commissioner Goins said she did not have enough information to comment on whether healthcare is part of the state employee inviolable contract.
There being no further business, the meeting adjourned at 11:37 AM.