The second meeting of the Subcommittee on Governance of the Blue Ribbon Panel on Public Employee Health Benefits was held on Tuesday, July 12, 2005, at 1:00 p.m. in Room 327 of the Capitol. Senator Julie Denton, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Julie Denton, Chair; J. D. Jones, Susan Lehmann, and Thomas Loving.
Guests: Jill Hunter, Department of Education; John Wilkerson, Kentucky Education Association; Christine Wilcoxson, Personnel Cabinet.
LRC Staff: Mark Roberts, Betsy Johnson, and Peggy Sciantarelli.
The minutes of the June 22, 2005, meeting were approved without objection, upon motion by Ms. Lehmann.
Guest speakers were John Wilkerson, Kentucky Education Association (KEA); and Jill Hunter, Director of the Division of Human Resources, Department of Education. They testified regarding the impact on local school districts and the Department of Education if the health insurance plan year were changed from a calendar year to a fiscal year.
Mr. Wilkinson provided the members with a written copy of his remarks, which are summarized as follows.
KEA is concerned that changing the plan year to a fiscal year would introduce a number of problems and uncertainties for school district employees, which constitute the majority of the state health insurance group. School districts nonrenew hundreds of nontenured school employees each year but recall most of them for the new school term. Currently those employees retain their health insurance coverage, and there is minimal disruption. Changing plan years in July could result in either an interruption of coverage or payroll deduction headaches. For example, would laid off or nonrenewed employees participate in a spring open enrollment? Would they be allowed to continue coverage that crosses plan years, especially if there are changes in benefits and premiums? How difficult would it be to make the payroll adjustments for these employees, and how would their pay be impacted? Payroll adjustments are a major problem for large school districts because they have a larger number to process. In testimony before the Blue Ribbon Panel's Benefits Subcommittee, a representative of Jefferson County public schools indicated that their payroll deduction process for employees is not currently able to accommodate changes in deductions over the summer.
KEA also has concerns about how an open enrollment can be conducted effectively during March or early April, a time when many school districts traditionally have spring break and student testing preoccupies the focus and energies of school districts. Although a complete open enrollment may not be needed, at least a limited yearly open enrollment would seem to be needed. Changing the plan year would also complicate matters for teachers who decide to retire but change their minds in July or August. Another important question is how deductibles and out-of-pocket maximums can be adjusted to ensure that group members are not adversely affected by changing the plan year.
In closing, Mr. Wilkerson said KEA believes that these issues should be fully vetted and resolved before a decision is made, and that the Blue Ribbon Panel should refrain from recommending changing the plan year so that the issues can be thoroughly studied prior to the next legislative session.
Ms. Hunter said she would provide some additional facts to supplement what Mr. Wilkerson said. In summary, she said that most schools issue 24 paychecks per year. If the new health insurance plan year were to commence in July, this would be problematic for summer payrolls, which are paid with prior year monies with prior year deductions.
Flexible spending accounts must be reported on a calendar year basis. Putting the plan year on a fiscal year basis would require state agencies' two major payroll systems to run two sets of books. This would cause a problem for teachers whose contracts are not renewed. They would be eligible for COBRA coverage, but the COBRA notice might not come until September, simply because they were not called back to school. Would teachers be prepared to pay three or four months ' premiums at the COBRA level?
Changing the plan year could be year-end closeout problems. June is a busy month in which as many as six payrolls are run—two for June, two for July, and two for August—in order to finish one year prior to starting another year and to also allow time off for operational staff. With a new set of deductions with an effective date of July 1 loaded into the payroll system, after having run six payrolls, the potential volume of errors could be significant. This could create complications for each of the 176 school districts, the Department of Education, and the Department of Employee Insurance.
Some districts "pink slip" all their teachers each year, so that no one knows with reasonable certainty whether they will have a job for the next school year. With this significant unknown, new and nontenured teachers would have difficulty making health insurance decisions during spring open enrollment. Another factor to consider is that during spring break, which could last as long as two weeks, staff would be out of the office at a time when they would need to be making insurance decisions.
Ms. Hunter, in closing, said that the Department of Education does not want to be a barrier to the decision but rather wants to make all the facts known and offer assistance in answering questions and researching the facts.
Senator Denton thanked the speakers and said they had made some very good points. She went on to say that the Blue Ribbon Panel Co-chairs are interested in the opinions of all five subcommittees regarding this issue and that she, personally, believes the change would cause too many problems that would far outweigh any benefit. Also, the disruption would recur annually. It was the consensus of all members present to recommend against changing the plan year to a fiscal year.
Senator Denton called attention to a July 12 memorandum to the Governance Subcommittee from Christine Wilcoxson, Personnel Cabinet, and Shawn Crouch, Cabinet for Health and Family Services. The memo was in response to an issue paper, drafted by Betsy Johnson of the LRC staff, which had been discussed with Ms. Wilcoxson and Mr. Crouch at the June 22 meeting of the Subcommittee. The conclusion in the issue paper was that the Personnel Cabinet should be required to promulgate an administrative regulation and adopt by reference in the regulation certificates of coverage (CoC) that may be issued to public employees covered under a self-funded public employee plan. At the June 22 meeting, Ms. Wilcoxson and Mr. Crouch said they would consult with legal staff in both cabinets regarding this question. In their July 12 response, Ms. Wilcoxson and Mr. Crouch stated that certain aspects of the self-insurance administration which are not addressed by other authorities through statute, regulation, contracts, or required documents should be included in an administrative regulation—e.g., those aspects that relate to banking, collection of premiums from agencies, premium billing and reconciliation, grievance procedures and appeals, and member fraud. They said they did not believe it to be in the best interest of the Commonwealth or its employees to include in an administrative regulation the certificates of coverage, the summary plan description (SPD), or benefit coverages, as that would restrict the Department for Employee Insurance in making necessary changes to the insurance program that may be required for the benefit of employees.
Ms. Johnson questioned why the memorandum specified grievance procedures and appeals for inclusion in an administrative regulation, since they are usually found in certificates of coverage. She noted that self-funded governmental plans are exempt from ERISA and can obtain certain waivers from compliance with HIPAA. She said they are typically the least regulated plans in the nation, which would be another consideration for the Panel in deciding whether to incorporate the CoC into administrative regulation. Mr. Roberts suggested that if the benefits are not outlined in an administrative regulation, the Subcommittee may want to consider whether to recommend a procedure for legislative oversight. Senator Denton noted that the Subcommittee had decided in previous discussions that the benefits should not be enacted statutorily.
Ms. Wilcoxson, Commissioner of the Personnel Cabinet's Department for Employee Insurance, was in the audience and was invited to address the Subcommittee. She said that the conclusions on page two of the July 12 memorandum only state the Cabinets' preference and that it should not be inferred that it is the Cabinets' position that they will not or are not required to promulgate the benefits in administrative regulation. She went on to say that the problem with putting the benefits into regulation is that this would prevent the Commonwealth from being able to react quickly—e.g., in order to address errors in the insurance plan or accommodate changes in insurance law. Grievance procedures would be included in the SPD but could also easily be outlined in administrative regulation. The Cabinets' research identified only five other states' programs that include authority for promulgating regulations, and those grants of authority do not require the program to promulgate on specific topics but merely authorize the agency to promulgate regulations when needed. Senator Denton thanked Ms. Wilcoxson.
The Subcommittee next reviewed recommendations that had been proposed by the members for submission to the full Blue Ribbon Panel. The recommendations were contained in a three-page chart, dated July 12, 2005, entitled "Subcommittee on Governance," which listed the issues, action required, and comments relating to each of the proposals. There was an extended period of discussion, during which some of the proposed recommendations were amended. The Subcommittee did not adopt the proposals relating to the drug formulary and insurance rating.
It was agreed by the majority of members present to adopt the following recommendations, which would be outlined in a new chart dated July 13, 2005, for submission at the meeting of the full Panel on July 13:
· Recommend that the plan year not be changed from the calendar year.
· Require the Secretary of Personnel to submit information to the Employee Advisory Committee at least 60, rather than 30, days prior to issuance of the RFP and require the Employee Advisory Committee to submit its recommendations at least 15 days prior to issuance of the RFP.
· Recommend the Secretary of Personnel create a Summary Plan Description (SPD) setting forth the benefits and plan provisions and to include those provisions it deems necessary in administrative regulations.
· Establish a fund; set requirements for reserves; direct that funds for incurred but not reported expenses be set aside solely for that purpose; stipulate how surpluses may be utilized; provide that funds do not lapse and may not be used for purposes other than providing benefits.
· Require quarterly financial reports, including information on claims, enrollment, and expenditures, to the Legislative Research Commission, Employee Advisory Committee and Kentucky Group Health Insurance Board.
· Require inclusion of the information on the state group fund in the annual report of the Kentucky Group Health Insurance Board; include data on administrative oversight of the third party administrator, disease management programs, wellness programs, case management audits, a comparison of actual results to performance guarantees, and educational and communication efforts; require the report to be sent to local government and nonexecutive branch state agencies participating in the group; change the deadline for the annual report from October 1 to December 1.
· Recommend that the membership of the Employee Advisory Committee and the Kentucky Group Health Insurance Board remain as currently provided by statute and recommend that these two groups explore options for improving and promoting communication with state group members concerning the state health plan.
· Recommend that legislative staff attend meetings of the Employee Advisory Committee and the Kentucky Group Health Insurance Board and receive copies of minutes and reports.
Business concluded, and the meeting was adjourned at 2:25 p.m.