program review and investigations




Minutes of the Fourth Meeting

of the 2000-2001 Interim


 October 12, 2000


The fourth meeting of the Program Review and Investigations Committee was held on Thursday, October 12, 2000 at 10:00 AM, in Room 149 of the Capitol Annex. Senator Katie Stine,  Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members: Senator Katie Stine, Chair; Senators: Charlie Borders, Brett Guthrie, Ernie Harris, Paul Herron, Vernie McGaha, Dan Seum, Ed Worley; Representatives Adrian Arnold, Sheldon Baugh, Dwight Butler, H. "Gippy" Graham, Charlie Hoffman, Ruth Ann Palumbo and Dottie Sims.


Guests:  Secretary Carol Palmore, Personnel Cabinet; Jill Hunter, Deputy Executive Director of the Office of Public Employee Health Insurance, Personnel Cabinet; Eric Poston, Benefits Data Administrator, Personnel Cabinet; Edward B. Hatchett, Jr. Auditor of Public Accounts; Secretary Jimmy Helton, Cabinet for Health Services;  Inspector General Pam Murphy, Cabinet for Health Services; Edward Wilson, Director, Division of Long Term Care, Cabinet for Health Services and Floyd Parrish, Director, Community Health Services, and acting Director, Division of Licensed Child Care, Cabinet for Health Services.


LRC Staff:      Ginny Wilson, Ph.D., Committee Staff Administrator, Lowell Atchley, Judy Fritz, Greg Hager, Tom Hewlett, Alice Hobson, Joseph Hood, Doug Huddleston, Margaret Hurst, Dan Jacovitch and Susan Spoonamore, secretary, Program Review Staff.


            Minutes of the September 14, 2000 meeting were approved by voice vote upon motion made by Sen. Harris and seconded by Rep. Palumbo.


            Ginny Wilson, Committee Staff Administrator, Program Review, gave a synopsis of the study proposal, "Analysis of Economic Development Programs" (a copy of the study proposal can be found in the LRC Library file). Dr. Wilson stated that the study proposal  recommends a review of the Department of Financial Incentives within the Cabinet for Economic Development; an evaluation of the duties and efforts of the East and West Kentucky Corporations', and a review of the studies required by the Kentucky Development Bond Programs. The following programs to be included in the review are KREDA, KIDA, KJDA, and the Economic Development Bond programs. Dr. Wilson also stated that the overall goal of the review will be to ascertain how effective  programs of the Department of Financial Incentives have been, and to evaluate the efforts of the East and West Kentucky Corporations and how they relate to efforts undertaken by the Cabinet.


Sen. Harris stated that it appears that some of  the programs may be conflicting and outdated, in that they may help one county but not in a neighboring county.  He asked if the review would be done on a region-by-region basis and whether the study proposal includes a review of the different economic development tools that are available to different counties.


 Dr. Wilson stated that staff would be looking at the mix of programs on a regional basis, although a review on the county level had not been incorporated into the study proposal.


Sen. Stine suggested that the study proposal be amended to include issues of equity between neighboring regions.  She  asked if staff had envisioned looking at the equity issue.


 Dr. Wilson stated that the study proposal includes a review of  the programs and a review of the regional components of the East Kentucky Corporation and the West Kentucky Corporation in trying to understand the criteria used to make particular awards.  The proposal does not specifically state that staff look at differences in the regional impact of the programs. 


Sen. Stine requested a motion for a voice vote on the study proposal as written, with the understanding that an addition would be made to address regional variations in program eligibility. 


 The Analysis of Economic Development Programs Study Proposal was approved by voice vote upon motion made by Sen. Worley and seconded by Rep. Graham.


  Dr. Wilson then presented a follow-up report on the State Group Health Insurance Report.  (A copy of the presentation, in its entirety, can be found in the LRC Library file). Dr. Wilson stated that the Program Review and Investigations staff was instructed to evaluate the reasons for the demise of Kentucky Kare and to assess the feasibility of the Commonwealth's establishing another self-insured plan to provide health insurance to state employees and retirees. Dr. Wilson told the Committee that Kentucky Kare failed because of the adverse selection created when it offered a state-wide indemnity plan that competed against regional managed care plans. The problems created by adverse selection were greatly exacerbated by artificial limits on premiums and insufficient utilization management and a complete absence of reliable data about enrollments, premium receipts and incurred claims, which made adequate response to these problems all but impossible. The problems experienced by Kentucky Kare were larger in magnitude, but similar in nature, to those which caused Blue Cross & Blue Shield to suddenly withdraw its Key Care indemnity plan for state employees in 1987.  Similar problems occurred in both a fully-funded plan and a self-insured plan, which indicates that the Commonwealth has a structural instability in its state employee insurance market that must be addressed. Dr. Wilson also stated that there is little expectation that penetration of managed care into rural areas will increase significantly in the foreseeable future, meaning that state officials must devise methods to ensure equitable treatment of employees in each of the different markets. Employees, retirees, and insurance carriers respond to the incentives that exist in the structure of the health insurance program; therefore, how the incentives are designed can have a significant financial impact on individual policyholders, insurance carriers, and the state itself. For an example, an on-going policy concern has been the fact that low income state employees could not afford dependent coverage for health insurance. An attempt to address that problem was implemented in the current plan year by the development of an EPO type plan, which is basically a catastrophic medical plan.  The policy intent was to bring the premiums down and make it affordable for low income state employees, but what has happened is that the people who are choosing the EPO plan are young healthy males, which can increase adverse selection. In conclusion, Dr. Wilson stated that in the future, it should be feasible for the Commonwealth to establish a self-insured plan. However, this step alone will not solve the structural problems that exist in the markets for state employee health insurance. Currently there is not adequate data to allow state officials to make reliable decisions about how to best change the structure of the state employee health insurance market. As a result of the recommendations adopted by this Committee in August of 1999, recommendations 1, 2, 2A and 2B were incorporated into Senate Bill 288, which was adopted by the 2000 General Assembly. 


Sen. Stine asked if House Bill 250 contained tracking and data collection requirements and  why there was no record keeping in 1998. 


Dr. Wilson responded that House Bill 250 had some basic data requirements, but the major data elements that had originally been proposed were not included in the Bill. Dr. Wilson stated that Plansource, had been the third party administrator for the Kentucky Health Purchasing Alliance, and due to the poor job performance of Plansource, the Alliance got out of that contract and went with United Chambers. There were huge problems in the data transition because the data just did not exist. It was not collected and maintained. 


Rep. Guthrie asked that when comparing Kentucky's health insurance premium  to other states, where does Kentucky stand in ranking at the present time? What would have been the average at that time.


Dr. Wilson stated that those figures had not been updated, but staff can do that.


Rep. Guthrie asked what type of plan Indiana uses.


Dr. Wilson stated that she did not know.  Those are questions that the Board will have to address in its report.


Sen. Stine asked that staff obtain those figures to be presented at the next meeting.


Rep. Graham asked that in the 43 states who offer self-insured plans, do they require a state university to belong to that as well as state government employees.


Dr. Wilson stated that it varies since the definition of a state group varies considerably among states. 


Rep. Graham said it was his understanding that if the university system and a few others were mandated as being a part of this, it would smooth things out and possibly succeed. 


Dr. Wilson stated that there are two issues.  First, how big do you want the group to be, and secondly is active employees versus retirees. However you define the group, as people start to leave it sets up an adverse selection problem.  When you have retirees in the state group, it raises the average costs of the premiums for the state group to cover their claims. There are some groups who want to take their younger active employees  and leave the state group because they can get better rates. 


Rep. Palumbo asked what an EPO plan was.


Dr. Wilson stated that it is Exclusive Provider Organization.


Sen. McGaha asked if reinsurance was ever done by Kentucky Kare.


Dr. Wilson stated that it is her understanding that it was not. In the early years they thought they did not need it and in the later years it is doubtful they could have purchased reinsurance with the losses they were incurring. 


Secretary Carol Palmore of the Personnel Cabinet, in response to the follow-up presentation, stated that in 1998 when it became apparent that Kentucky Kare was in a real mess because the State had no claims information, the Cabinet asked the legislature to let the Personnel Cabinet take over the health insurance in order to get a handle on claims, enrollment and costs. It was the Health Purchasing Alliance and the third party administrators for the Health Purchasing Alliance that failed to keep claims information, utilization information and enrollment information. In 1999 the Cabinet took over health insurance and immediately began requiring the health insurance companies to provide the Cabinet  with specific types of information. The Cabinet has gone through a mini-reorganization and recently the Governor signed an Executive Order that creates the Office of Public Employee Insurance. Secretary Palmore stated that the Cabinet has begun to comply with the recommendations as follows: That, beginning in calendar year 2000, when the requests for proposals were issued, the Cabinet made it clear as to what kind of information the carriers had to provide to the Cabinet, and in the RFP  for 2001, the Cabinet made it clear that the State owns all of the data. The Cabinet has hired a benefits data administrator who can take the raw claims data that the companies provide and clean it up so that the Cabinet can do specialized reports. The Cabinet has also signed a contract with MedStat, a nationally known data analysis company that specializes in health insurance data. MedStat is based out of Michigan and has no financial interest in any of the companies that provide insurance to Kentucky public employees nor do any of those companies have any financial interests in MedStat. The Kentucky Group Health Insurance Board was established, under Senate Bill 288, to make complex policy decisions pertaining to the provision of health insurance to state employees and retirees. The Cabinet has already started looking at detailed reporting on the distribution of enrollment,  claims, and on the financial stability of the program to be sent to the General Assembly by October 1, 2001. The William M. Mercer Company will be assisting the Cabinet with an analysis of what other states are doing in terms of their offerings and the costs for health insurance for their public employees. Secretary Palmore told the Committee that the Cabinet feels that it is well on its way to doing everything that the Committee has recommended. 


Edward B. Hatchett, Jr., Auditor of Public Accounts, gave a brief update on tasks assigned to the Auditor's Office in the Executive Branch Strategic Planning and the Performance Budgeting Pilot Program enacted in HB 502 of the 2000 Regular Session. Mr. Hatchett stated their findings include a weakness in the present budget process because agency performance information is unevenly generated, it is inconsistently reported and it is not included in the Executive Budget presented to the General Assembly.  Findings also suggest improvements in the tracking of agency strategic plans during this biennium. Finally, the appropriations in state agency budgets should be linked to the performance of those agencies and the General Assembly should have the benefit of consistent, comprehensive, accessible and usable performance information during the budget deliberations.  In his conclusions, Mr. Hatchett told the Committee that the Commonwealth is poised to take advantage of a legislative framework established during the 2000 Regular Session. The principals identified in the Appropriations Act, as major contributors to this effort, are clearly important participants.  It is incumbent upon them to ensure that the building blocks are developed so performance based budgeting will succeed. Then, the funding of programs and subprograms will be based on performance and effectiveness, which will provide government accountability to the taxpayers of the Commonwealth. (A copy of Mr. Hatchett's presentation can be found, in its entirety, in the LRC Library file).


Sen. Stine asked why the description of the current budget process that was due on September 30 had not been completed.


Mr. Hatchett said it was because the State Budget Director had not yet selected the pilot agencies.


Sen. Stine asked Mr. Hatchett if he knew why the State Budget Director had not yet made the selections thus enabling the Auditor's office to make a better study.


Mr. Hatchett stated that he would defer to the Budget Director for comment on that. 


Gerald Hoppman of the Auditor's Office, stated that the State Budget Director is in the process of developing a leadership team to lay out the framework for strategic planning as well as the framework for picking the budget units. Once those recommendation are made, then they will report to Empower Committee. 


Sen. Stine asked that once the information is received, what is the time table for having a complete study.


Mr. Hoppman stated that if the Auditor's Office can receive the budget units from the State Budget Director in November, then by January 2001 or February 2001, we will have the necessary information to work with. 


 Doug Huddleston, Program Review Staff, stated that in 1995, the Program Review and Investigations Committee directed staff to review the public protection role of the former Kentucky Cabinet for Human Resources (CHR), primarily by examining the management and operations of the Division of Licensing and Regulation (L&R). On April 10, 1997, the Program Review and Investigations Committee adopted the report and recommendations.  On September 11, 1997, a follow-up was conducted to determine the status of the Division's efforts to implement the recommendations adopted by the Committee. The Division reported that all the recommendations had been addressed, with some being fully implemented. In March 1999, staff was again directed to undertake a follow-up of the 1997 report. It appeared that L&R had made strides in improving its public protection functions, particularly the survey process and complaint investigations.  The follow-up recommended that the Office of Inspector General and Long Term Care Ombudsman should expedite signing the Memorandum of Agreement between the two agencies. On August 23, 2000, Governor Patton issued Executive Order 2000-1104 relating to the reorganization of the Division of Licensing and Regulations. The order abolished the Division and created the Division of Long Term Care, the Division of Licensed Child Care and the Division of Community Health Services to take its place (a copy of  Mr. Huddleston's presentation can be found in the LRC Library file).


Sen. Stine asked if the Recommendations had been followed.


Mr. Huddleston stated that some of the recommendations have been implemented and some are still ongoing. 


Pam Murphy, Inspector General, Cabinet for Health Services, stated that the Cabinet is in the process of final implementation of the recommendations (a copy of the Cabinet's Response to the 1997 Report can be found in the LRC Library file).  She stated that the Division of Licensing and Regulation has been reorganized into three divisions, which will result in more efficient and effective operations with emphasis on statewide survey consistency and quality assurance. A new initiative that the Cabinet is proposing is the creation of the Training Academy for Surveyors in Kentucky (TASK), which will provide training to improve overall quality of care in the programs and facilities the Cabinet regulates. The Cabinet feels that with the implementation of the recommendations it will ultimately result in better care for the people of the state.


Sen. Harris asked if an individual would have to go through three different people to get answers, in light of the reorganization of the Division of Licensing and Regulations into three divisions.


Inspector General Murphy stated with the reorganization it becomes more specialized.  Each new division will have a program manager in all regional offices which will result in more efficient and effective operations.


Sen. McGaha asked Secretary Jimmy Helton, Cabinet for Health Services, for an update on the situation at Oakwood in Somerset. 


Secretary Helton stated that the Cabinet has suspended two people, one person  elected to retire and there are approximately six pending personnel actions at this time.  The Cabinet is prepared to go in and do some training and reworking on the quality assurance program and risk management at Oakwood. 


Inspector General Murphy stated that the Cabinet is working very closely with the Attorney General's Office as they proceed with their investigation and are also following the federal guidelines and will be issuing a statement of deficiencies.


Sen. McGaha asked if the problems can be corrected for HCFA.


Secretary Helton stated that the problems can be corrected.


Meeting adjourned.