The first meeting of the Subcommittee on Governance of the Blue Ribbon Panel on Public Employee Health Benefits was held on Wednesday, June 22, 2005, at 9:00 AM, in Room 113 of the Capitol Annex. Senator Julie Denton, Chair, called the meeting to order, and the secretary called the roll. (The Subcommittee previously met informally as a discussion group on May 25, 2005.)
Present were:
Members: <Members>Senator Julie Denton, Chair; Lee Jackson, J. D. Jones, and Thomas Loving.
Guests: Shawn Crouch, Cabinet for Health and Family Services; Christine Wilcoxson, Personnel Cabinet.
LRC Staff: Mark Roberts, Betsy Johnson, and Peggy Sciantarelli.
Shawn Crouch, Executive Director for Health Policy, Cabinet for Health and Family Services, and Christine Wilcoxson, Commissioner of the Personnel Cabinet's Department for Employee Insurance, discussed oversight of health insurance benefit changes and the role of a pharmacy and therapeutics committee in the Public Employee Health Insurance (PEHI) program. They provided the Subcommittee with copies of their presentation, which is summarized as follows.
In the past, the health insurance benefits have been defined in the Request for Proposals (RFP). The benefits for 2005 were defined by House Bill 1, enacted in the 2004 extraordinary session of the General Assembly. The state is now moving to self-fund the health insurance program. Under federal guidelines for self-insured plans, benefits are typically defined in a plan document, usually referred to an SPD. The Commonwealth, which is exempted from ERISA, is not required to follow federal guidelines or to use a plan document but may choose to do so. For 2006, the RFP itself does not define benefits but instead is designed to procure a vendor—third-party administrator (TPA)—that can administer benefit designs determined by the Commonwealth.
PEHI stakeholder groups include the Kentucky Group Health Insurance Board and the Employee Advisory Committee (EAC). The Board has 13 members—the Secretaries of the Finance & Administration and the Personnel Cabinets, Education Commissioner, State Budget Director, EAC Chair, Insurance Commissioner, State Auditor, and one representative each of the Administrative Office of the Courts, Kentucky Retirement Systems, Kentucky Teachers' Retirement System, active teachers, active employees, and active classified education support employees. The Board meets monthly to analyze and research Kentucky's program, cost, enrollment, claims, utilization, and programs in other states, and the Board issues an annual report and recommendations each October. The next meeting, June 28, is open to the public.
The Employee Advisory Committee's 32 members include representatives of school districts, state government, retirees, local health departments, Kentucky Teachers' Retirement System, Kentucky Education Association, state employees, Kentucky Association of Counties, and Kentucky League of Cities. The group advises the Personnel Secretary or his designee regarding the state-sponsored health insurance program. House Bill 1 (enacted in 2004) expanded the role of the Advisory Committee. The EAC met quarterly in the past but has met monthly since December 2004 and has also formed subcommittees. EAC now looks at procedures for soliciting bids or requesting proposals; implementation, maintenance and administration of the health insurance program; and development of a uniform drug formulary. The group reviews health benefit plans and submits its approval or recommended changes to the Secretary prior to release of the RFP. The EAC's next meeting is June 23 at 9:00 a.m. in the Personnel Cabinet's conference room.
All presentations relating to the health insurance program are accessible on the Personnel Cabinet's web site. They are also e-mailed to EAC and Health Insurance Board members and other interested parties. In view of all the anticipated changes to the health insurance program, there is an effort to increase communication. By the end of June, all program participants will have received a mailing from the Personnel and Health & Family Services Cabinets.
The pharmacy benefit administrator (PBA) for the self-insured program is expected to bring a pharmacy provider network, administer claims, implement the pharmacy plan, manage the drug formulary, and provide clinical and utilization management. Anthem is the TPA for the two regions which are self-funded in 2005 (regions 1 and 2). Those regions utilize the TPA's formulary, which is set by Anthem's pharmacy and therapeutics (P&T) committee. The carriers for the PEHI fully-insured regions have their own P&T committees. Typically, the TPA for a self-insured plan would have a P&T committee, which examines drugs for both efficacy and costs; includes multi-disciplinary specialists; has access to industry experts; and makes decisions on the basis of therapeutic effectiveness rather than local pressures. The 2006 RFP does not specifically include a P&T committee. It requests bidding vendors to provide information on their formulary management process. The decision has not been made yet whether the self-insured program will have an internal P&T committee or utilize the P&T committee of the pharmacy benefits administrator. This concluded Mr. Crouch's and Ms. Wilcoxson's presentation.
Senator Denton asked whether there are plans to expand the time frame for submitting plan benefit information to EAC prior to issuance of the RFP, in order to allow ample time to consider recommendations made by the advisory group. Mr. Crouch agreed that 30 days, as specified in House Bill 1, is not sufficient but said it will be different in future years. Information on benefits can be provided to interested groups sooner because there will be a benefit design process in lieu of an RFP process. He said he does not know what the time frame should be specifically but agreed that a longer time period is warranted. Ms. Wilcoxson said that there should be constant communication and feedback. She said that the EAC may also want to continue meeting more often than quarterly.
Senator Denton asked when the benefit structure will be decided for the fiscal plan year beginning July 1, 2006. Mr. Crouch said there is not a final decision whether to switch the plan year from a calendar year to a fiscal year. He said that if benefit changes are made in July, those changes would need to be finalized by September or October of 2005. Senator Denton asked what would be the basis for possible benefit changes, since there would not yet be any data from the self-insured plan that is implemented in January 2006. Ms. Wilcoxson said that although the funding mechanism will change in January, claims utilization and other data that the Commonwealth has been collecting on a regular basis will still be available. She said she doubts that the wellness program will have much affect on costs the first year or two after the start of self-funding; however, it will eventually impact costs as well as the health of participants. Mr. Crouch said they are looking at all of the claims data for 2003 and 2004, plus preliminary data for 2005 from the two regions that are currently self-funded, and trying to identify cost drivers and strategies relating to the cost drivers. He said that it can take up to seven years to realize investment return from wellness programs but that they are hoping for a quicker return. Senator Denton asked whether it has been decided to use a plan document. Mr. Crouch said he is fairly sure that they will, in keeping with typical self-insured plans.
Mr. Jackson submitted for the Subcommittee's consideration a proposal to amend KRS 18A.2255 to require the secretary of the Personnel Cabinet to submit health benefit plan information to the EAC at least 60 days prior to issuance of RFPs, rather than 30 days; and to require the EAC to submit its approval or recommendations to the Secretary no later than 15 days prior to issuance of RFPs, rather than seven days. Mr. Crouch said that 60 days is not unreasonable but pointed out that the RFP is the trigger for the time frame in that statute and that it may be as long as 10˝ years before another RFP is issued for the health insurance program. Mr. Jackson said he realizes there will not be an RFP but wanted to suggest the time frame change for discussion purposes. Mr. Loving said that in order to ensure that information continues to be forthcoming in the future, something should probably be put in place to mandate those sort of discussions. Senator Denton said she envisions the need for statutory change as the Commonwealth moves to a self-insured program.
Senator Denton said the question has arisen in past discussions whether an administrative regulation should be promulgated to govern the self-funded health insurance plan. She called attention to an issue paper drafted by Betsy Johnson, LRC staff, which concludes that the Personnel Cabinet should be required to promulgate a regulation and adopt by reference in the regulation certificates of coverage that may be issued to public employees covered under a self-funded public employee plan. Mr. Crouch and Ms. Wilcoxson were given time to review the issue paper and then were asked their opinion. Mr. Crouch said he believes the legal counsels of both Cabinets would need to look at this. He said he cannot advocate promulgation of a regulation but suggested that it would probably be preferable to statutory enactment. Senator Denton asked that Mr. Crouch and Ms. Wilcoxson to have their legal staffs render an opinion and forward it to Mark Roberts of the LRC staff. Mr. Jones spoke in favor of having an administrative regulation.
Senator Denton asked the speakers their thoughts about legislative oversight of the self-funded program. Ms. Wilcoxson said they have anticipated that significantly more financial reporting will be needed. Mr. Crouch said they will be reporting regularly to the Appropriations & Revenue Committee. He also said he believes the annual October report of the Group Health Insurance Board will continue to serve as a good formal reporting system. Senator Denton said she was just reminded by Mr. Roberts that the October report would need to be moved to another month if the plan year changes from a calendar to a fiscal year. Mr. Crouch said they will need to think about changing the report date. Ms. Wilcoxson said they will also bring that point up at the next Board meeting.
Mr. Jackson provided the members and speakers with a list of recommendations he is proposing for discussion. He called attention to the recommendations on page two relating to regular reporting to legislative committees, the advisory groups, and the public, to ensure effective oversight of the state-funded plan. Senator Denton asked the speakers their opinion of these recommendations, and they indicated that they did not see a problem with them—that they are in favor of regular reports.
Discussion turned to Mr. Jackson's recommendations regarding General Assembly oversight of use and security of funds for the self-funded program. Senator Denton asked how shortfalls would be covered if claims are higher than anticipated under the self-insured plan. Ms. Wilcoxson said there will be reserve funds and that it is important to protect those reserves. Senator Denton asked whether the reserves should be protected by statute. Ms. Wilcoxson said she believes so but that she would like to refer that question to their legal staff. Mr. Crouch said he believes there must be assurance that the funds are preserved. He said they have an actuarial opinion on the size of the reserves, and it appears that they will be sufficient; however, they want to ensure that they continue to be sufficient in the future. Senator Denton said that Mr. Jackson has made a very good point—that the General Assembly does need to address security of the funds to ensure that the health insurance program remains viable.
Mr. Jones expressed concern about whether there should be one overall reserve fund or separate reserves for each agency. Ms. Wilcoxson said that in order to spread the risk over the entire group, there should be one overall fund. She went on to say that it would be a nightmare to track funding by individual agencies and that the administrative expense of doing so would greatly diminish the savings anticipated from self-funding. Mr. Crouch said the actuaries would need to analyze the implications of maintaining single or separate reserves. Ms. Wilcoxson noted that they will be able to track claims data by agency in order to identify problem areas. Mr. Loving said it makes more sense to him to maintain a single reserve fund. Mr. Jackson said it would defeat the purpose of self-funding to separate the reserves into individual funds.
Senator Denton asked what should happen to surplus monies if the reserves exceed the amount needed. Mr. Crouch said current trends indicate there will not be any excess. He said that claims costs are difficult to predict, and he cautioned against moving funds in and out of the reserves. He said he is not sure how the reserves will be handled and that they would have to look at that issue.
Senator Denton referred to Mr. Jackson's recommendations relating to the EAC and the Group Health Insurance Board. She said that when the subcommittee members met last month as a discussion group, the question had been raised about the constitutionality of legislators serving on those groups. Mr. Crouch and Ms. Wilcoxson said that both EAC and the Board have open meetings that legislators would be welcome to attend, but they said they cannot speak to the constitutional question. Senator Denton asked Betsy Johnson, LRC staff, to research this for the Subcommittee.
The Subcommittee reviewed the full set of Mr. Jackson's recommendations for potential submission to the full Panel in July.
#1 Recommend that specific plan benefits similar to a certificate of coverage, including the drug formulary, be included in Kentucky Administrative Regulations.—Senator Denton explained that the Subcommittee will defer further discussion on this recommendation until receipt of an opinion from the legal staff of the Personnel and the Health & Family Services Cabinets.
#2 Recommend that the membership and responsibilities of the group evaluating the drug formulary be spelled out in statute. Require this group to consider both the therapeutic value of drugs as well as their cost in recommending a drug formulary. Require this group to ensure that the copay tier to which a drug is assigned is reasonable with respect to making sure members receive needed care. Require that the membership of this group include consumer representation. Require that the Group Health Insurance Board receive regular reports regarding the drug formulary. Require that the drug formulary be spelled out in Kentucky Administrative Regulations. Require that drugs may be deleted from the formulary annually with notification to members during open enrollment (with exceptions for safety reasons).—Senator Denton said she assumes that the PBA's P&T committee will establish the formulary. Mr. Crouch said that if the PBA has a sufficient P&T committee, adopting the PBA's formulary will result in economies for the health insurance program, including the benefit of any rebates. Senator Denton asked Mr. Jackson how he feels about using the PBA's established formulary. Mr. Jackson said he would not have a problem with that and did not see a need for unwarranted statutory restriction. He said he had raised the issue for discussion because he felt it was within the responsibility this Subcommittee. Mr. Crouch said they would have information about the composition of the P&T committee and formulary management after the contract is awarded August 15. Mr. Roberts noted that the Blue Ribbon Panel's final report is due August 1. Regarding the formulary, Mr. Crouch said later in the meeting that because of day-to-day changes in the pharmaceutical market and actions by the Food and Drug Administration, it would be very restrictive to include the entire formulary in an administrative regulation. He suggested a more flexible approach.
#3 Recommend that the General Assembly address the use and security of funds for the self-funded program, including how reserves will be established. Will there be one overall reserve, or will each entity/agency have a reserve? Direct that funds for incurred but not reported (IBNR) claims be set aside in a separate fund and only utilized for IBNR claims. Ensure that any drug rebates received by the plan are used for the health plan and its members. Stipulate how surpluses will be utilized to ensure they are used for the benefit of the health plan and its members. Require that the funding rates (comparable to premium rates) be determined by rating on a combined basis based on relative values. Require that all entities are rated together (actives and retirees; state employees vs. quasi-entities).—Recalling earlier discussion, it was the consensus of the members present that security of the funds should be addressed statutorily by the General Assembly, since historically all types of funds have been "raided" for other uses in the budget. It was the consensus also that there should be one overall reserve fund. Senator Denton asked the speakers how funds for IBNR claims would be handled. Mr. Crouch said this decision would be based on information from the actuaries. Ms. Wilcoxson said that additional studies are underway but at this point it appears that the reserves would need to cover a minimum of 45 days' worth of claims. Mr. Jackson said his main concern was to make sure that sufficient funds will be available. Mr. Loving said that during the days of Kentucky Kare they were told that a 90-day reserve was preferable. Ms. Wilcoxson said that in the past a 45-90 day reserve has been the norm but that three months would be too much, based on studies thus far by PricewaterhouseCoopers. She said more information about this will be available after additional data comes in.
Senator Denton asked whether disposition of drug rebates needs to be addressed statutorily to ensure that the state will have benefit of the rebates. Mr. Jackson said his concern is that all of those dollars go back into health care for the program participants. Ms. Wilcoxson said that the RFP provides for return of the rebates to the state. Mr. Crouch said that the vendor bids will be for administrative services only and that any pharmacy rebates would have to go back to the Commonwealth. It was the consensus of the members that the rebates should be addressed statutorily. Mr. Crouch and Ms. Wilcoxson said they would have to look at that issue. Regarding any surpluses over and above the reserves, Mr. Crouch said that any surplus dollars would stay in the program but that he did not think that would become an issue. Mr. Jackson explained his recommendation that funding rates be determined on a combined basis based on relative values. He said he is suggesting that benefits paid should be compared to premiums that have been paid by the employees when premium rates are determined so that, hopefully, premiums can be lowered based on experience of the group.
#4 Recommend that the General Assembly require regular reporting to legislative committees to ensure effective oversight of the state-funded plan. Require regular reporting to the legislative Appropriations and Revenue Committee on the financial status of the self-funded program, including administrative costs, on at least a quarterly basis. Require regular reporting to appropriate legislative committees regarding various aspects of the self-funded program, including administrative oversight of the TPA, the procurement process, as well as educational efforts and other communications with state group members. Require reports provided to legislative committees also be provided to the Employee Advisory Committee, the Group Health Insurance Board, and the public.—Senator Denton noted that all the members are in agreement on the need for regular reporting.
#5 Recommendations regarding the EAC and the Group Health Insurance Board—Recommend that, if legislators do not serve on the EAC and the Group Health Insurance Board, staff from LRC monitor those meetings and provide regular reports for legislative leadership. Recommend that representation of stakeholder groups currently represented on the EAC and the Board not be reduced; that these two groups explore options for improving and promoting communications with state group members about the state health insurance plan; and that the Board continue to be the focal point for the preparation of the annual report for the state health insurance plan.—Senator Denton noted that the Subcommittee is awaiting staff's legal analysis regarding legislators serving on these advisory groups. For discussion purposes, she asked those present their thoughts on the subject. Mr. Loving said he could see some pluses but that it might be preferable to have LRC staff monitor the meetings instead. Mr. Jackson said that if legislators are not able to serve, it would be better for them to receive information from LRC staff on activities of the groups, rather than just reading the Board's annual report. Senator Denton concurred with Mr. Loving and Mr. Jackson. Mr. Jones expressed preference for legislators obtaining information firsthand by participating in the groups themselves. Senator Denton suggested another option would be for LRC staff to report on meetings, obtain approval of the report at the next meeting of the group that is the subject of the report, and then forward the report to the appropriate legislative committees. Mr. Jackson said he thinks that is an excellent idea.
Regarding representation of stakeholder groups on the EAC and the Board, Mr. Loving suggested looking at whether the numbers warrant cities and counties each having two members on the EAC. Mr. Crouch said they could provide the Subcommittee with the number of city and county participants in the state health insurance group. Mr. Jones said he would not advocate any decrease in advisory group representation. The consensus of those present was to continue the current advisory group representation, but Mr. Loving said he would still be interested in seeing the city and county employee numbers. Subcommittee members present also concurred in the recommendations relating to improved communication with state group members and having the Board continue to be the focal point for the annual report on the health insurance plan.
The Subcommittee decided to hold its next meeting at 1:00 p.m. on July 12, the day before the next meeting of the full Panel. (Mr. Jones noted that he would not be available from July 1-11; Mr. Jackson said he will be not be available July 10-13.).
Business concluded, and the meeting was adjourned at 10:45 a.m.