Blue Ribbon Panel on Public Employee Health BeneFits

 

Minutes of the<MeetNo1> 1st Meeting

of the 2005 Interim

 

<MeetMDY1> April 27, 2005

 

The<MeetNo2> first meeting of the Blue Ribbon Panel on Public Employee Health Benefits was held on<Day> Wednesday,<MeetMDY2> April 27, 2005, at<MeetTime> 10:00 AM, in<Room> the Brown-Forman Corporation Kentucky Room, Kentucky History Center. Representative Harry Moberly and Senator Tom Buford, Co-chairs, called the meeting to order, and the secretary called the roll.

 

Present were:

 

Members:<Members> Senator Tom Buford, Co-Chair; Representative Harry Moberly Jr., Co-Chair; Senators Julie Denton and Daniel Mongiardo; Representatives Bob DeWeese and Jimmie Lee; Bob Arnold, Jerry Bailey, Carol Carman, Victor Cooper, Shawn Crouch, Lee Guice, William Hanes, Cheryl Hayes, Lee Jackson, J. D. Jones, Arletta Kennedy, Susan Lehmann, Thomas Loving, Michael Mayo, Brent McKim, Wanda Mitchell-Smith, Richard Remmers, Erwin Roberts, Jim Sproul, Nancy Toombs, Nancye Vincent, and J.P. Wiles.

 

Guests: Christine Wilcoxson, Personnel Cabinet; and Mark Birdwhistell, Cabinet for Health & Family Services.

 

LRC Staff:  Mark Roberts, Greg Freedman, Alisha Miller, Karen Powell, and Peggy Sciantarelli.

 

Senator Buford and Representative Moberly welcomed the members and invited them to stay for the "get acquainted" luncheon immediately following the meeting. Senator Denton, Senator Mongiardo, Representative DeWeese, and Representative Lee also made brief opening statements. Senator Buford announced that Shirley Clark had resigned from the Panel because of family health problems.

 

Mark Birdwhistell, Undersecretary for Health in the Cabinet for Health & Family Services, and Christine Wilcoxson, Commissioner of the Personnel Cabinet's Department for Employee Insurance, gave a presentation on the history and current situation of the public employee health insurance program, implementation of House Bill 1 (enacted in the 2004 special session), and expectations for the 2006 plan year. Their presentation was outlined in a handout provided to the Panel. Mr. Birdwhistell acknowledged other persons who are working closely on the health insurance program: Personnel Cabinet Secretary Erwin Roberts and Deputy Secretary Bob Wilson; Shawn Crouch, Cabinet for Health & Family Services; Mike Burnside, Finance & Administration Cabinet; Chris Corbin, Office of Insurance; Kathy Stein, PricewaterhouseCoopers.

 

In summary, Ms. Wilcoxson said that the state's average monthly contribution has been escalating over the years (shown on page 2 of the presentation, and based on the cost of the lowest single-coverage option-A plan). The state group averages 228,000 members, including dependents, with approximately 180,000 employee members. Medical and prescription spending in 2004 was $741 million; for 2005, this is estimated to reach $935 million. The state provides 97 percent of the total premium cost for single coverage and 33 percent of the premium cost for dependents. If there are no changes, the cost of claims is projected to be $1.23 billion in 2006. As required by House Bill 1, official notice was given to the Employee Advisory Committee (EAC) that benefits for the first six months of 2006 will be identical to 2005. The Administration has been working closely with EAC and with the Health Insurance Board. Copies of the recommendation of the EAC's Subcommittee on Uniform Drug Formulary have been provided to the Panel (included in meeting folders). Additional recommendations on implementation and benefit issues are anticipated, and a report on implementation of House Bill 1 will be given upon request to the Interim Joint Committee on Appropriations & Revenue.

 

In summary, Mr. Birdwhistell said that the current situation of the health insurance program is not sustainable. Health insurance costs continue to rise rapidly. There is a lack of consistency in network access, which is a problem particularly for retirees living out of state. Some areas of the state are encountering service issues. The Administration wants to approach health care on a global basis. Common "cost drivers" are demographics, technology advances, regional variations in cost and access, pharmacy costs and utilization, and overall health care utilization. The Administration looks forward to working with the Panel to spread the message that utilization has a direct impact on the cost of health insurance, to define the problems, and to communicate the solutions. The goal of the Commonwealth is to create consistent service levels and network access across the state, as well as stability in health plan choice from year to year. The Commonwealth also needs to deal with the issue of how often to conduct open enrollment, which is a costly and laborious process. Other states have dealt with this issue.

 

It is the intention of the Administration to move the Commonwealth group health insurance program to a statewide self-funded platform beginning January 1, 2006. As a "pilot project," two regions (Regions 1 and 2) are being self-funded in 2005, and utilization data from those regions is now becoming available. Self-funding will allow the Commonwealth to move the health insurance program from an illness model to a wellness model of health care; institute best practices in health plan funding and administration; introduce enhanced disease management programs and wellness initiatives; leverage the state's purchasing power as the largest buyer of health care in the state in order to drive down costs through increased competition and transparency; streamline plan administration, including use of technology in open enrollment; ensure the best available provider networks; and secure the best available pharmacy cost structure.

 

When moving to self-funding in January 2006, plan benefits will be identical to those currently in place, at least until July 2006. The Commonwealth will contract with a one or more third-party administrators (TPAs) to perform the functions of claims administration, network access, network discounts, disease management programs, member services, wellness programs, and any other services deemed appropriate. The Commonwealth will consider altering the benefit structure beginning in July 2006, with input and recommendations from the Blue Ribbon Panel, the 2006 General Assembly, the EAC, the Health Insurance Board, and others. Conversion of the plan year to coincide with the budget fiscal year is also being considered. How this change would impact open enrollment may be of concern to the education sector, which is another issue to be discussed.

 

The estimated timeline for the 2006 plan year includes a report to the Appropriations & Revenue Committee in May 2005; release of the RFP about May 15 to secure the services of the TPA(s); vendor selection by early August, with contract negotiations in mid-August; vendor implementation from August 15 to December 31; and open enrollment during September and October, with 2006 ID cards ready by December 5, 2005.

 

In closing, Mr. Birdwhistell said that the Administration intends to openly communicate and to be available to meet with interested groups as needed during the coming months. He said that by implementing self-funding, the Commonwealth will own the data, have fiduciary interest in where the dollars are spent, know where the opportunities for utilization are, be able to share with everyone the true cost of health care, and determine why health care costs are higher in certain geographic areas. In going forward and making decisions, the Administration values and looks forward to input from the Blue Ribbon Panel and others.

 

Ms. Wilcoxson and Mr. Birdwhistell answered questions from the Panel. Senator Buford encouraged guests in the audience who have questions to submit them to a member of the Panel.

 

J. P. Wiles, Mayor of Somerset, asked whether a self-funded plan would be totally self-funded. Mr. Birdwhistell said that total self-funding is deemed the most appropriate way to go, based on size of the plan population and what is being done in the benchmark states. Mr. Wiles said he is very interested in equalizing costs statewide and asked how this will be accomplished. Mr. Birdwhistell said that a self-funded platform will allow the state to set the premium equivalent at whatever level is judged sufficient to cover costs and will provide more flexibility to level out premiums across the Commonwealth. He added that the biggest argument for self-funding is that it puts the employer in the driver's seat in managing premiums and their own data.

 

Lee Jackson, Kentucky Association of State Employees, asked whether the percentages in slide #4 relating to employer and employee contributions could be further broken down to reflect actual employee cost. Ms. Wilcoxson said she would be happy to produce a report showing how much the employees are paying and provide it to Mr. Jackson or anyone else who would like to have it. Senator Buford asked Ms. Wilcoxson to provide Mark Roberts of the LRC staff with a copy of all information requested by panel members today so that it can be passed on to all the members. He also asked her to include information for 2004 as well as 2005 when filling information requests. Ms. Wilcoxson said this would not be a problem. Mr. Birdwhistell clarified that there would not yet be any information available pertaining to the 2006 plan year.

 

Senator Mongiardo asked whether, under self-funding, the state could at will ask employees to pay higher premiums, equally across the state, if budgeted funds are insufficient. Mr. Birdwhistell said that there would just be more flexibility to level out any regional inconsistencies. Senator Mongiardo asked whether some employees would pay more than others. Mr. Birdwhistell said that has been happening in prior years under a fully-insured platform but that by going to a self-funded platform the state would have more flexibility to make premiums consistent. Senator Mongiardo stressed the need to focus not only on cost but also on the quality of health care. He said that in his area of the state Medicaid and Medicare pay 84 percent of the cost of patient care on average, which means there has to be cost-shifting from somewhere else to pay the remainder, whether it be in dollars or in quality. He said his concern is that if reimbursements to hospitals continue to be lowered, quality of care will be impacted, leading to medical errors and increased death rates—not only for state employees but for all patients. Mr. Birdwhistell said the Commonwealth wants to obtain the best possible network pricing and to ensure that people have network access and receive care in the appropriate setting—for example, in primary care settings versus emergency rooms. He went on to say that self-funding will allow a greater focus on quality care and outcomes than would be possible under a fully-insured arrangement where the Commonwealth would not be in full control.

 

Senator Denton asked whether it is envisioned that employee contributions will be on a sliding scale based on salary. Mr. Birdwhistell said that they have not gone that far. Ms. Wilcoxson said that recommendations of the Panel will help determine that. Senator Denton asked whether the TPA is envisioned to be a sole entity or a consortium of entities coming together. Mr. Birdwhistell said that the intent of the RFP is to be as flexible as possible to allow for either a sole entity or multiple entities coming together.

 

Brent McKim, Jefferson County Teachers' Association and Kentucky Education Association, asked whether it would be possible to produce a bar graph showing both the state's average monthly contribution and the average monthly employee contribution from 1980-2004, in order to compare the trend for each. Ms. Wilcoxson said she would provide that information.

 

Jerry Bailey, retired state employee, asked whether the surrounding states and any other states are self-insuring. He asked, too, that the bar graph also include groups that have joined the state health insurance plan from 1980-2004. Ms. Wilcoxson's staff indicated that that information is available back to 1999. Mr. Birdwhistell said they would do the best they can to add in those groups. He went on to say that 60 percent of state and local government entities are self-funded and that the majority of the surrounding states are self-funded.

 

Nancy Toombs, active classified education employee in Henderson County, said there is a lack of primary care physicians in her area. She asked whether self-funding would address this problem. Mr. Birdwhistell said that there would be a focus on network capacity and standards and greater flexibility, which would probably be the best way to deal with network accessibility. He said this type of problem would be addressed up front in the network standards in the RFP and that there would be the opportunity to address isolated instances "on the go."

 

Mr. McKim asked how the health insurance inflation rate for the public employee pool has compared to the national rate of inflation over the past 5-10 years. Ms. Wilcoxson said that they have that information and can provide it. She said that the rate for the Commonwealth's public employee pool is considerably higher than the national rate, which is about 14 percent; Kentucky's pharmacy rate of inflation, however, is pretty close to the national average of approximately 19 percent. Mr. McKim said it appears that Kentucky is becoming more unhealthy than other states. He said the fact that Kentucky's rate is going up faster would seem to indicate that something is changing relative to other states. Mr. Birdwhistell said that having the data will be helpful in finding the answer. He cautioned against making generalizations about wholesale trends and said that it is important to "drill into the detail" in order to determine the true cause in comparison to other states. He said there is probably not enough detail available at this point but that this is the kind of thing that PricewaterhouseCoopers will be looking at.

 

Senator Buford said he finds it interesting that utilization under the state health plan almost mirrors utilization under Medicaid. Mr. Birdwhistell said that early data from the two regions that are already self-funded indicates that utilization patterns—for pharmacy in particular—look very similar to data from the Medicaid population. He went on to say that this should not be too surprising, because physician prescribing patterns are the same, and customer expectations are much alike. By looking at these things on a global basis, in trying to solve problems for the state as a whole, lessons and solutions that have been learned will be available to the Panel.

 

Senator Buford asked whether the Panel could have information comparing state employee utilization with private sector utilization. Mr. Birdwhistell said it would be possible to provide that.

 

Senator Denton asked whether there is any preliminary data from the two self-funded regions relating to emergency room (ER) utilization. Mr. Birdwhistell said data from hospitals is not complete because their billing process is slower. Senator Denton said there is a high level of improper ER utilization in the Medicaid population. She asked whether the 2005 Commonwealth health insurance plan and the one that will be proposed for 2006, provide for a higher copay for inappropriate ER utilization, or a lower copay for proper ER utilization. Mr. Birdwhistell said that determining what is or is not a bona fide emergency is a difficult issue. He went on to say that this is a possible option to look at but that he feels, personally, that it is preferable to provide opportunities, incentives and primary care accessibility to counter overutilization of ERs, rather than put hospitals in the difficult position of making decisions about utilization.

 

Dr. Cooper, a chiropractor from Russell Springs, asked why the Commonwealth wants to undertake self-funding when it failed to work under Kentucky Kare. Mr. Birdwhistell said that the self-funded approach currently being pursued is totally different. He went on to say that Kentucky Kare did not have the appropriate safeguards or pricing in place to keep it fiscally solvent. Providers were reimbursed for charges rather than according to a network discounted fee schedule. Disease management and wellness programs and the whole cadre of utilization management that is now available to a health plan was not included in the Kentucky Kare model. Senator Buford said that LRC has done an extensive study of Kentucky Kare and that it will be made available to members of the Panel. When asked by Dr. Cooper, Mr. Birdwhistell said that Anthem is the TPA for the two regions that are currently self-funded.

 

Bill Hanes, Executive Director, Kentucky Retirement Systems, asked what ideas are being considered regarding the provider network for retirees. Ms. Wilcoxson noted that Kentucky retirees reside in 49 states. Mr. Birdwhistell said that companies that bid on the TPA contract would have to assure that they have the network capacity to serve out-of-state retirees. He said that "wrap-around" networks are available and that the RFP will require the TPA(s) to have those network contracts available.

 

Representative DeWeese noted that Kentucky leads the nation in lung cancer, heart disease, and other diseases. He asked whether the information that has been requested comparing the rate of medical inflation with other states could also reflect how these cost drivers affect Kentucky's cost compared to the surrounding states. Ms. Wilcoxson said that she will ask PricewaterhouseCoopers to include that type of information if it is possible.

 

Mr. McKim suggested that another significant difference from the Kentucky Kare approach is that self-funding will be looking at one choice in each region, whereas Kentucky Kare may have suffered from adverse selection due to the fact that there were multiple choices. Mr. Birdwhistell said he believes that was the case in the later days of Kentucky Kare. He added that, as the Commonwealth moves forward, even though there may be only one TPA in a particular area, there will still be choice of benefit plans.

 

Wanda Mitchell-Smith, AFSCME Council 62, said she would like to have more information relating to the impact of obesity, particularly on youth, and also information regarding prescription pools and costs. Mr. Birdwhistell said they will be glad to provide that, which is the type of information the Commonwealth needs in order to design disease management programs.

 

Senator Denton asked whether decisions will be based also on health risk factors and life style choices. Mr. Birdwhistell said they are not to that point yet but that those types of issues will be brought before the Panel. Senator Denton asked whether there has been discussion of altering the benefit design for 2007. Mr. Birdwhistell said that issue will also be dealt with by the Panel, the Employee Advisory Committee, and the Health Insurance Board. Other issues include defining the problem, how Kentucky is consistent or inconsistent with other states and the commercial market, and opportunities for improvement. There will also be debate and suggestions relating to the new benefit plans.

 

Senator Buford asked whether it will be possible to expand on supplemental coverages offered by the commercial market and whether the state might be able to derive fees for handling these supplemental offerings. Ms. Wilcoxson said they plan to examine the choices of voluntary benefit plans and the possibility of obtaining better rates for those benefits. She said she would be happy to provide the Panel with a list of the more than 200 insurance companies that offer voluntary coverages.

 

Representative Lee said that one of the greatest benefits of self-insuring will be stability and consistency in the program. He asked about the timeframe that will be covered by the RFP. Mr. Birdwhistell said that the Commonwealth will be able to extend the TPA contract over a specified period of time. Mike Burnside, Executive Director of the Finance & Administration Cabinet's Office of Material and Procurement Services, said that they are looking at a 2½-year initial contract term, followed by optional—probably two—one-year renewals. He said that the total contract would cover up to 4½ years, in order to provide the best stability. Mr. Birdwhistell pointed out that this does not mean, though, that benefits will stay the same during that time period.

 

Representative Lee asked whether different parts of the health insurance program might be bid separately—e.g., the wellness program, pharmacy management, and overall administration. Mr. Birdwhistell said they are considering bidding it both ways and that there might be opportunities for TPA partnerships. He said he cannot provide details of how the RFP will be structured, for proprietary reasons, but that it will be written in such a way as to preserve the maximum flexibility possible for the Commonwealth.

 

Senator Buford asked whether the Administration foresees any problems relating to flexible spending accounts if the health insurance program changes during a plan year. Ms. Wilcoxson said they have been looking into this issue, that it is manageable, and that they have consulted with other groups and states that have switched to a fiscal year timeframe. Senator Buford suggested the idea of perhaps paying an annual "wellness" incentive bonus from general funds to employees who waive coverage, based on a percentage of the unused portion of the employer's premium contribution, which is placed in individual flex accounts for those employees. Mr. Birdwhistell said that carrying forward unused monies or making them available for other uses is not in the initial six-month plan but is definitely on the drawing board. He said that the RFP is being designed to ensure that the TPA is experienced and capable in those types of benefit designs.

 

Senator Buford noted that the Commonwealth group probably accounts for approximately 18-20 percent of the health insurance market in Kentucky and that this should serve as a strong bargaining chip for a self-insured plan. Mr. Birdwhistell agreed, stating that the state needs to take advantage of its bulk purchasing power to get favorable discounts in network pricing, pharmaceuticals and administrative services.

 

Senator Mongiardo said it has been estimated that approximately 31 percent of health care costs is administrative in nature. He asked whether the health insurance program will be looking at ideas or incentives to try to help the medical community become more efficient and reduce their cost of delivering health care—both by educing medical errors and by more efficient use of their dollars. Mr. Birdwhistell said there is a lot of overlap among the people involved in both the Senate Bill 2 (enacted in 2005) and the health insurance program initiatives. He added that there would definitely be interest in coordinating with the SB 2 initiative. Senator Mongiardo said there is a national organization called Leapfrog, in which many Fortune 500 companies have come together to drive efficiencies and reduce errors in health care delivery. He said that organization's primary initiative is to employ incentives to push for computerized physician order entry. He suggested the Commonwealth look at how to incentivize hospitals and other health care providers to move more quickly to the use of information technology, since this would probably result in more savings than could be generated on the administrative side of the equation.

 

Mr. McKim said he would hope the Panel will have the opportunity to look at recommendations to help facilitate consumers' access to information, so that health care providers will have a greater incentive to focus on quality. Mr. Birdwhistell agreed that this is important. He pointed out that the first steps in addressing that issue are underway in accordance with House Bill 278 (enacted in 2005). He said that working with the Blue Ribbon Panel will provide a helpful platform for confronting health care issues. He also noted that the Commonwealth health insurance group is a driving force in Kentucky and has a spillover effect on the overall health insurance market.

 

Representative Moberly said that today's presentation to the Panel has been good and has set the tone well for future discussions. He said that important issues to be considered by the Panel include whether to change the plan year to coincide with the fiscal year and whether to continue the same benefits into the second half of 2006. He went on to say that the recommendations of the Panel, the other advisory groups, and the Administration will be presented to the General Assembly during the 2006 session. Ultimately, it will be the General Assembly's decision how to proceed, and the legislature evidenced that it needs assistance when it created the Blue Ribbon Panel.

 

Senator Buford asked whether Kentucky law would permit the Panel to be involved in discussions relating to the RFP before it is finalized. Mr. Burnside explained that they are prohibited from giving access to the RFP document before it is made public. Mr. Birdwhistell pointed out that the purpose of the RFP is to procure a TPA and that it does not set benefits. Senator Buford asked whether the Panel can have a copy of the RFP when it is available, and Mr. Birdwhistell said that they would send a copy to each member of the Panel.

 

Senator Buford encouraged members to advise staff of any issues they would like the Panel to consider. The Co-Chairs announced that the Panel would have its second meeting sometime during the week of May 23, subsequent to release of the RFP, and that members would receive notification of the exact date and place. They indicated that the Panel might have some two-day meetings and also might meet in other areas of the state—possibly in May. The Panel also may want to consider breaking into subcommittees.

 

Business concluded, and the meeting was adjourned at 11:45 a.m.