The second meeting of the Interim Joint Committee on State Government was held on Wednesday, September 25, 2002, at 1:00 PM, in Room 149 of the Capitol Annex. Senator Albert Robinson and Representative Charles Geveden, Co-chairs, jointly chaired the meeting. Representative Geveden called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Albert Robinson, Co-Chair; Representative Charles Geveden, Co-Chair; Senators Walter Blevins, Charlie Borders, David Boswell, Ernie Harris, Alice Kerr, Ed Miller, Ernesto Scorsone, Elizabeth Tori, and Johnny Ray Turner; Representatives Woody Allen, Adrian Arnold, Eddie Ballard, Joe Barrows, Carolyn Belcher, John Bowling, James Bruce, Buddy Buckingham, Dwight Butler, Larry Clark, Perry Clark, James Comer, Tim Feeley, Joseph Fischer, Charlie Hoffman, Jimmie Lee, Mary Lou Marzian, Tanya Pullin, Jon David Reinhardt, Arnold Simpson, John Will Stacy, Tommy Turner, and Jim Wayne.
Guests: Senators Tom Buford, Lindy Casebier, and Marshall Long; Representatives Brian Crall and Susan Westrom; Carol Palmore and Carl Felix, Personnel Cabinet; Don Speer, Finance and Administration Cabinet; Bill Hanes, Kentucky Retirement Systems; Gary Harbin, Teachers' Retirement System; Donna Early, Judicial Form Retirement System; Fred Hyser and Linda Cooper, Aetna; Jude Thompson and Lawrence Ford, Anthem; Karen Bornhauser and Shannon Turner, Bluegrass Family Health; Mark Birdwhistell and Shawn Crouch, CHA Health, and Carla Whaley, Humana.
LRC Staff: Joyce Honaker, Joyce Crofts, Mark Roberts, Tom Troth, Stewart Willis, Karen Armstrong-Cummings, Laura Hendrix, Jim Roberts, and Peggy Sciantarelli.
Representative Geveden welcomed guests from the newly-formed Joint Subcommittee on the State Health Insurance Program, composed of members from the Banking & Insurance and the State Government Committees. He also recognized Karen Armstrong-Cummings, a new member of committee staff.
The minutes of the August 28 meeting were approved without objection.
Senator Robinson assumed the chair. Next on the agenda was discussion of the state group health insurance program with representatives of insurance companies that are currently, or were formerly, participating in the program. Representing Aetna, which chose not to offer for 2003, were Fred Hyser, Director of National Accounts and State Government Programs, and Linda Cooper, Director of Regional State Government Relations.
In his opening statement, Mr. Hyser said that medical costs are rising rapidly and utilization is increasing nationwide. It is difficult for plan sponsors, insurance companies, providers, and consumers to price forward on medical costs and utilization. Costs are a major concern for Aetna.
When Senator Robinson asked Mr. Hyser if he could name specific problems or solutions, he responded that the cost issue is being driven primarily by increased provider costs—for inpatient facilities and hospitals, specialists and physicians, radiology, lab expenses and home health—and prescription drugs. He said that in Kentucky, and elsewhere, inpatient and outpatient utilization and emergency room usage have increased significantly. The insurance industry is beginning to see more consideration of consumer-driven health care models, such as a defined-contribution plan. This type of plan does not purely target the cost issue, however, but it does give the consumer a financial stake. These plans typically have high deductibles and involve more out-of-pocket expense for the consumer but usually include a carryover feature for unused money—e.g., a spending account type of arrangement. He said he does not have the "silver bullet" for the problem and does not think anyone does.
Representative Feeley asked why Aetna chose not to bid for 2003. Mr. Hyser said that Aetna had experience with the state during 2001 and for part of 2002 and lost money on the state business. At this point, the Company is not in a financial position to continue its participation at a loss. He said they were fearful of continued adverse selection of members. Also, the number of employees they insured was dramatically reduced January 1, 2002, to less than 12,000. Aetna feels that having a mutualized rating that is equal across the state penalizes them to some degree, because medical costs differ in some areas of the state. There were a number of factors that would prevent Aetna from breaking even, let alone making a profit. They also felt that the state group would continue operating on a fully-insured basis, even though a self-insured proposal was included in the RFP. He said that there were simply too many variables beyond the Company's control for them to be able to predict the future cost of medical claims and the corresponding risk to the Company.
Representative Feeley asked whether the problem had been primarily utilization, cost, or adverse selection? Mr. Hyser said it was a combination of all these factors. He said the Company rates its experience with the Commonwealth group as an independent entity. The group changed dramatically when membership dropped to less than 12,000. He noted that Aetna had previously covered more than twice that number in the Commonwealth group.
Representative Feeley noted that Aetna provided service in 18 counties in 2001. He asked whether Aetna felt that any of those counties could possibly have made it worthwhile to continue participating. Mr. Hyser said that goes back to the issue of geographic rating. Since premiums across the state are equal, theoretically, if Aetna had responded to the RFP and been awarded, say, only 10 rural counties where medical costs are higher, the Company would have been short in its cost projections and would be severely impacted. When asked by Representative Feeley, Mr. Hyser said that Aetna does not write individual health insurance—only group health insurance, including self-insured plans.
Representative Feeley asked what the state might do to entice Aetna to participate again. Mr. Hyser responded that Aetna would want to have input in the writing of the RFP. They would then have to determine whether they have sufficient resources in Kentucky to be successful on a statewide basis.
Senator Borders said he works for one of three nonprofit hospitals in his area. They treat everyone "who comes in the door" and, in any given year, may have to write off several million dollars. The hospital also experiences a loss in Medicare reimbursements. He said he had not heard any mention of tort reform, which is a cost driver—and which he does not believe will ever be dealt with. He said he has never understood why many of the insurance companies, which appear to want to "cherrypick," could not offer one rate statewide, with the realization that people in Jefferson County and largely populated areas might not be as sick as people in eastern Kentucky and other areas. He said that if the higher-cost areas where there are fewer or no coverage choices comprise only 10 percent of the population, it seems that the rates for the other 90 percent could be adjusted upward to more than offset the costs incurred by the problem 10 percent. He said physicians have had to leave the state because of exorbitant insurance rates, and hospitals are closing their doors; and he would like to hear what the insurance companies are going to do to address the problem. Mr. Hyser said that an actuary could probably predict costs fairly accurately for four million people—barring unforeseen changes in technology and consumer-drive marketing plans that many in the health care industry have today—but it is quite different to project costs for a group of only 12,000 people. He said that he is not an actuary and apologized because he does not feel equipped to answer Senator Border's question. He added that in the 1990's, health care costs were reasonable, and employers and plan sponsors were generating interest income in the stock market. Suddenly, in the early 2000's, investments have gone sour and health care costs have skyrocketed.
Senator Borders asked whether tort reform would help bring costs down. Ms. Cooper said that Aetna is involved with tort reform nationally and would want to be a part of any movement toward tort reform in Kentucky. Mr. Hyser went on to say that it would probably be feasible for a carrier to bid one statewide rate if that carrier insured the entire pool. Senator Borders said that that is his point—why some company has not stepped forward to take the entire pool. He said he is not targeting Aetna with his remarks but that, in order to find solutions, everyone will have to come to the table and be fair-minded and work together, and not just be concerned with protecting their own turf.
Representative Pullin asked how the Commonwealth group differs from other major groups insured by Aetna. Mr. Hyser said that a financial analyst might predict that a group of teachers, for example, would have a higher rate of utilization, simply because of the level of education. In some employer groups, however, the level of education is lower and, consequently, there would be less utilization. He said he realizes that is a simplistic answer. He went on to say that self-insuring may or may not be the solution but that, if claims experience is available for analysis, the Commonwealth should take a serious look at the pro's and cons of self-insuring.
Representative Bowling asked what the insurance companies can do to participate and work with the state, and what the state, the cities, and counties can do to help reduce premiums. Mr. Hyser said, hopefully, the insurance companies are communicating with the population to help them understand the types of health care that are available and what is appropriate and what is not. Hopefully, disease management programs would be made available to those who are chronically ill, e.g., with asthma, diabetes, or heart failure; and, hopefully, data is being provided that was not available in the past that would permit an employer such as the Commonwealth to do a thorough analysis and develop a strategic long-term plan. He said he is not sure how to address the cost issue, which is huge. People are living longer, and there is a price to pay for that. He said it is a collective problem which he believes can be mitigated but not totally solved.
Representative Larry Clark asked whether it would help amortize the costs if the contract for the state group was for two years rather than one. Mr. Hyser said a two-year contract would make it more worthwhile for the carrier to bid, but it would be difficult to make projections for any period longer than two years on a fully-insured basis. Representative Clark said he would like for Mr. Hyser and the other company representatives attending today's meeting to communicate later with the Committee Co-chairs and the Personnel Cabinet regarding the three or four biggest cost rises in health care that they have observed in the Commonwealth during the past two or three years, and to also suggest three or four corrective measures. Mr. Hyser agreed to do so, and Senator Robinson thanked Mr. Hyser and Ms. Cooper for testifying.
The next speaker was Jude Thompson, Vice-President and General Manager of Anthem Blue Cross/Blue Shield of Kentucky. Mr. Thompson said that Anthem values its relationship with the Commonwealth group and realized that its decisions when responding to the state RFP would impact Kentuckians, politicians, and Anthem's workforce. He noted that Anthem's coverage in the state group in 2003 will be reduced from 66 to 16 counties. He said that for the last few years, the state account has not been profitable, nor does Anthem believe it can be profitable in the future unless there is meaningful change in the RFP process. Last October, Anthem discussed its concerns with the state and in December sent a letter recommending potential improvements for the 2003 RFP.
Mr. Thompson said that the 2003 RFP asked for bids on three scenarios. Anthem bid 11 counties in Region #2, under the fully-insured, by county, scenario, and—when requested to do so—bid an additional five eastern Kentucky counties that lacked coverage. Anthem also bid a self-insured statewide PPO option but did not bid under the fully-insured, statewide scenario. He said that Anthem would consider covering the whole state as third party administrator (TPA) for a self-insured program, or under a contingent premium arrangement, in which the Commonwealth would cover any loss and any profit would be returned to the Commonwealth—and that Anthem would be willing to "break even" on an account this large. Also, Anthem would be more than willing to work with the state to develop a benefit design that would help control costs. He referred to the Commonwealth's prescription drug benefit, which, he stated, provides that no out-of-pocket costs are incurred in a plan year after the individual has paid for 50 prescriptions. He said he is not aware of any other account of Anthem's that includes this high-cost benefit. [NOTE: After 50 copayments in a calendar year—excluding mail order—additional copayments are reduced. Copayments for prescription drugs do not apply toward out-of-pocket limits.]
Mr. Thompson said that Anthem did not take lightly its decision to reduce its participation in the Commonwealth health benefits program, and it is important to Anthem that the Commonwealth will still have coverage for all 120 counties in 2003. He said Anthem is committed to the Commonwealth and intends to review and respond appropriately to all future RFP's for health coverage and, more importantly, will offer to work with state officials in establishing future program rules that may result in a "win-win" situation for both carriers and the state.
Senator Boswell questioned why Anthem is the only plan that is being offered in his area and why the cost is much higher. Mr. Thompson said he cannot speak to why there are not more carriers participating in that region but that Anthem wants to cover that region. They have had good experience there and have the right arrangements with providers and hospitals. He said their premium is largely based on the type of benefits offered and that improvements in the benefit design might lower the premium.
Representative Wayne asked about Anthem's self-insured proposal and the premium rates that might have been charged under that proposal. Mr. Thompson said that Anthem would be providing administrative services only in a self-insured plan, with the state assuming the risk. He said that discussion did not proceed to the point of discussing premium rates and that he did not know why the proposal was not accepted.
Senator Kerr asked about the 50-prescription benefit referred to earlier, which she said seems to be a glaring cost driver. She said she believes Jim Ramsey, the state budget director, had said in a budget hearing that the average number of prescriptions per individual is 26. Mr. Thompson responded that last year Anthem insured approximately 50,000 of the 235,000 eligible public employees, and that more than 5,000 of them reached the 50-prescription level within six months.
Representative Feeley said his county, Oldham, is one that was dropped by Anthem and that he has received numerous calls from concerned constituents. He questioned what can be done to bring Anthem back. He asked whether Anthem's suggestions for modifying the RFP had been ignored. Mr. Thompson said he would not say that at all. He said Anthem has a good working relationship with the Commonwealth and wishes they could be participating in every county. He said that, because of their experience, they were trying to look at things a little differently. Anthem insures a million Kentuckians outside of the state account; and, ultimately, Anthem decided that continuing to lose money on the state account would put a burden on those other Kentuckians. Representative Feeley also asked about Anthem's experience with the 50-prescription benefit discussed previously. Mr. Thompson said he doesn't know the exact details but would be glad to share that information with the Committee, as well as Anthem's suggestions for making the Commonwealth group more cost-effective. Representative Feeley asked Mr. Thompson to make that information available to the Committee, and he said he would.
Representative Lee said it seems that Anthem did not bid in any county that was bid by Humana. Mr. Thompson said the RFP process was closed—that Anthem could make assumptions based on experience but had no knowledge of the other carriers' bids. He said the reason Anthem did not bid in a particular county was experience driven—that is, based on the membership in a county, whether the Company was losing money to the extent that it was no longer an option to stay in the county.
Representative Lee commented on the lack of stability provided in the state group health coverage. He said his county, Hardin, will have only one carrier in 2003, Humana, and that many people will have to change physicians. He asked whether Anthem is willing to discuss with the Committee a self-insured proposal for the entire state that would provide network stability and which—since Anthem, as the TPA, would be held harmless—would include sufficient data collection, utilization review, and cost-effective preventive measures such as diabetes management, mammograms, etc. He also asked whether Anthem would be capable of covering the entire Commonwealth group of public employees. Mr. Thompson said they would be capable of covering the entire group and would be willing to discuss self-insurance. He also agreed with Representative Lee's opinion that the state would benefit from an all-inclusive self-insured program.
Representative Pullin asked why the premiums for her northeastern Kentucky area and Senator Boswell's area are among the highest. Mr. Thompson said he would be speculating somewhat but that he believes they are based on claims history, discounts to providers, network sufficiency and, of course, the benefit design of the plan.
Representative Geveden asked whether Anthem's data indicates that its utilization experience with state employees is greater than with its other insureds. Mr. Thompson said he would say yes—based on the percentage of the Commonwealth group insured by Anthem. When Representative Geveden asked why, Mr. Thompson said that it is a very rich plan. He said he does not have another account in Kentucky the size of the state group that is not using some form of self-insurance—and that employers with 500 employees, much less 235,000, usually look at self-insurance. Representative Geveden asked how health insurance premium dollars are allocated in general. Mr. Thompson said that approximately 85 cents of each dollar is for claims payment and 15 cents is for administrative costs.
Senator Harris suggested that the 50-prescription benefit needs to be looked at. He asked whether each refill counts toward the 50, and Mr. Thompson said he did not know.
Representative Stacy asked which five counties were initially without coverage for 2003 and now have Anthem as the only carrier. Carl Felix, Personnel Cabinet, said the counties are Boyd, Carter, Elliott, Greenup, and Lawrence.
Representative Stacy asked why Anthem's premium for 2003 is so much higher. Mr. Thompson acknowledged that their rate is considerably higher. He said Anthem knows what their claims costs are in every county and that the premium rate is based on that experience, with administrative dollars factored in. He said that adverse selection and morbidity play a part. For the past few years Anthem has tended to attract the people that most need health care, while the younger healthier members chose other, less expensive plans. Representative Stacy questioned, for example, why it would be necessary for the premium for Elliott County to be so much higher than the premium for Menifee County, which is in his district. Both counties are similar in size, population, and available health care providers. [Anthem is not a carrier in Menifee County in 2003.] He said he hopes that Anthem can help the Joint Subcommittee on the State Health Insurance Program get to the bottom of the problem. The people of Kentucky are concerned about the rising cost of health insurance, and there is a crisis of confidence and trust in the insurance industry as a whole. Mr. Thompson said that Representative Stacy's point is more than well taken and that Anthem will make every effort to improve the Commonwealth's health insurance program.
Representative Larry Clark asked whether Anthem's data indicates higher utilization by individual plan members or families. Mr. Thompson said he could get that information to Representative Clark but would have to research the question. Representative Clark asked whether Anthem has the capability to insure the entire state group. Mr. Thompson said they have the capability but would have to have a "very slow long talk" it if were to be done on a fully-insured basis. He said that many factors would have to be considered, such as increasing the employment base, rent, long-term leases, etc.
Representative Westrom asked whether Anthem is finding other examples of overutilization in particular regions of the state, besides the 50-prescription benefit, and if so, do they communicate this information to the state. Mr. Thompson said that Anthem does have data and reports of this nature that they would be willing to share. He said it is common practice in his profession to share such information with large employers, in order to help educate people about the cost drivers of the health care premium.
Representative Bruce said part of the cost problem is the practice of cities and counties having their retirees insured in the state group when their active employees are not. In addition, technological advances have outpaced the ability of the public to pay. He also referenced Mr. Thompson's earlier discussion regarding the trend for higher priced plans to be selected by those more in need of health care. He said there are many things that both the state and the carriers need to do and that they need to work together—and that, hopefully, the new Joint Subcommittee will be able to make a positive contribution.
Senator Blevins said that in 2001 CHA Health was the carrier in Boyd, Carter, Elliott, Greenup, and Lawrence Counties. He asked whether Anthem used CHA's data for the state group when bidding in those five counties, or did they rely on their own experience in those counties outside the state group. Mr. Thompson said he does not believe Anthem obtained data from another carrier. He said that if they did not have experience with the state group in a particular county, they would probably look at their data for nonstate groups in that area. He went on to say that Anthem tends to "do okay" in counties where they are the only carrier, because the membership includes both the healthy and the less healthy. That is one reason they were willing to bid in those five counties. He added that, conversely, Anthem tends to not do so well in counties where there are multiple carriers.
Representative Marzian suggested that the Joint Subcommittee will need to meet with physicians, nurse practitioners, pharmacists, and hospital administrators, since a long-term, group effort will be required to address the problem. She said there are many cost drivers that need to be looked at. For example, every patient that complains of headaches does not need an MRI. She went on to say that Kentucky has an unhealthy population, fueled by smoking and obesity and a high incidence of cardiovascular disease. She said there needs to be an emphasis on wellness and programs that promote healthy lifestyles and may help reduce costs. Mr. Thompson said that Anthem already has such programs and that education is a key component of their health care plans.
Representative Bowling said he believes attention to the health care crisis should not focus on state employees only. Senator Robinson responded that state employees have been mentioned frequently but that the current focus is predominantly on all public employees, although everyone is aware that it is also a private-sector problem. He said the Joint Subcommittee could request permission to study the private sector at some time in the future if they so wished. He thanked Mr. Thompson and called on the next speakers.
Representing Bluegrass Family Health were Karen Bornhauser, Chief Operating Officer, and Shannon Turner, Director of Government Affairs. Representative Wayne asked why Bluegrass selected the 23 counties in which it will be the sole provider. Ms. Bornhauser said that Bluegrass bid in the counties in which it had an adequate provider network and that the Commonwealth determined the number of carriers in each county. Ms. Turner said that during the bid process they were not aware of where other carriers were bidding. She said that Bluegrass bases it premiums on utilization experience, provider network, and history with the state group.
Representative Feeley asked for suggestions to help make health insurance available and affordable. Ms. Bornhauser said their experience echoes what has already been heard today regarding cost drivers. She said the benefit plan design continues to be a concern for all of the carriers. The demographics of the state group are unique—the population is a little older, a little sicker, and has higher utilization than Bluegrass's commercial population. She said that state employees are permitted to use the full state contribution [flexible spending account] if they waive health coverage, which is unique to Kentucky. She also suggested that the pool should include active employees of agencies that have their retirees in the state group. Senator Robinson thanked Ms. Bornhauser and Ms. Turner.
The next speaker was Mark Birdwhistell, Chief Executive Officer of CHA Health. He was accompanied by Shawn Crouch, Director of Government Relations. Mr. Birdwhistell said CHA has been a carrier in the Commonwealth group since 1995. He said their current bid was for 60 counties in central Kentucky; last year they bid in 59 counties. They have had a good track record with providers and members in those counties, and this was a strategic decision that would help keep the premium as low as possible. He said it is CHA's experience that medical costs vary from 11 to 40 percent across the state. If CHA had incorporated the higher cost areas into their bid, they would have had to increase their premium rate and perhaps not remained competitive in the central Kentucky area. This happened in plan year 2000, when they were not permitted to offer in Fayette and Franklin Counties. He noted that the Commonwealth's data shows a regional cost variance as much as 15 percent. He said that CHA chose to bid the central Kentucky area for 2003, where 37 percent of state employees live and where they can offer the most competitive price; and they were able to control the premium rate of increase to approximately five percent, in the aggregate.
As to improving coverage and lowering costs, Mr. Birdwhistell said that carriers need to increase the consumer's awareness of the true cost of health care and how that cost impacts insurance premiums. He said the carriers have not been doing this. Health plans also need to focus on disease management. CHA has heart, cancer, and asthma disease management programs and soon will institute one for diabetes. These programs are very successful in reducing the rate of cost increase and improving customer satisfaction.
Mr. Birdwhistell suggested that the Commonwealth needs to fully explore the concept of regional rating. He said there needs to be recognition that costs vary throughout the state and that health plans should be permitted to factor that variance into their premium. This would allow carriers to enter new markets and should, over time, increase competition and, hopefully, address the rate of cost increase. He encouraged the Joint Subcommittee to look at this issue. He said the state needs to look at its benefit design, particularly at the very rich Option A coverages, and that the 50-prescription reduced copay benefit definitely needs to be looked at.
Senator Boswell asked why counties in his area have only one carrier choice and a higher premium. Mr. Birdwhistell replied that there are factors that increase costs in different areas, such as demographics, utilization patterns, and unit costs. He said CHA knew that their prices would have to be competitive if the Company was to be assured of offering in the central Kentucky area. They considered offering in Jefferson County, where costs are 13-14 percent higher than in central Kentucky, but decided not to, for fear they would not be competitive in central Kentucky. Senator Boswell asked whether availability and cost of services at various health care facilities impact the large difference in premium in nearby Union and Webster Counties. Mr. Birdwhistell said he doesn't know about those particular counties but that demographics, unit costs, utilization, and benefit design are the underlying factors.
Representative Crall asked whether it would be fair to say that the relationship between premium price and cost are directly proportional. Mr. Birdwhistell responded affirmatively. Representative Crall asked how a carrier's bid would be affected when bidding for areas with significant variance in cost and why a carrier would selectively bid certain counties on the basis of regional costs. Mr. Birdwhistell said that the state RFP requires carriers to offer the same rate in all counties in which they bid. If costs are higher in some of those counties, that would have to be factored in. He said it is difficult for a plan to go into the remote areas. CHA did that two years ago, when they offered in both the Ashland and Danville areas; after factoring the higher cost area into its bid, CHA's rate was deemed noncompetitive for the central Kentucky area where the Company had the most members and favorable experience.
Representative Crall asked whether it is reasonable to consider lowering premiums without first addressing the cost issue. Mr. Birdwhistell said premiums and health care costs should be looked at simultaneously. He said he personally feels that if carriers can be encouraged to go into new areas that, over time, the competition will serve to level the rate of cost increase. He said he doesn't think costs will ever go down; it is not happening in the commercial market, and it's not going to happen in the state market. However, things can be done to control the rate of increase—e.g., disease management, adjustments in the benefit design, and perhaps some flexibility in how rates are computed. Representative Crall asked whether viable options would be to either require that every insurance company quote all 120 counties with one rate, or to consider regional rating. Mr. Birdwhistell said that if carriers were required to bid one rate for all 120 counties, it might ultimately increase the cost to the Commonwealth. As to regional rating, he said he thinks it could be a solution over time, as carriers compete with each other and build their networks. He said the plan that includes state employees has the most leverage with providers; it would require sharing that leverage to assist all carriers to attain part of the market share.
Representative Geveden said that, evidently, there was some regional rating in the Jackson Purchase area where he lives, since the premium is identical in each county. He asked whether CHA writes insurance outside Kentucky and whether other states are also facing rising costs. Mr. Birdwhistell said they do not write outside of Kentucky. He went on to say that, absolutely, health care costs and state employee health insurance are increasing nationwide. However, there are things that can be done locally to mitigate some of the issues. When asked, he told Representative Geveden he would be glad to work with the Joint Subcommittee.
Senator Robinson thanked Mr. Birdwhistell. He then said that, due to shortness of time, it will be necessary to again postpone agenda items #5 and #6 until the next meeting. There was no objection.
The next speaker was Carla Whaley, Vice-President of Sales for Humana in Kentucky. She said that Humana has been a partner with the Commonwealth since the late 1980's. They currently serve about 53,000 members statewide. Humana bid all three scenarios for the 2003 RFP. They bid in the 72 counties which they currently serve, were initially awarded 58 of those counties, and were awarded four additional counties as the result of the recent amendment to the state contract, for a total of 62. She said she believes there are solutions available. Humana has a new product, SmartSuite, that was piloted with Humana's own employees and which promises to produce effective results. Two of their large commercial clients—one public, one private—are planning to implement SmartSuite. She said the real issue today is that there are not health care "consumers"—there are health care "users" whose decisions regarding "purchasing" health care are not based on a financial consequence. Humana believes the consumer has to become involved.
Senator Boswell asked whether Humana tried to negotiate offering with the state group in the Daviess County area recently. Ms. Whaley said they did not. She said that when they responded to the RFP, they did not bid that area because they could not meet the network requirements. However, they are focused on building their network there.
Representative Feeley asked how SmartSuite works. Ms. Whaley said it offers a whole spectrum of products, from HMO's to indemnity plans. She said they believe that employees need to be given more choice in order to make good economic decisions. There needs to be financial consequences and contribution and benefit levels that meet different people's needs. For example, SmartSuite includes a unique product, CoverageFirst, which provides a $500 up-front benefit allowance but which has a steep deductible. Contributions and benefits need to be structured so that people start to think about what they need. SmartSuite provides a range of choices; the "catch" is that it needs to be on a full replacement basis. It does not work in a personal choice situation. That would pose issues for the Commonwealth, as the product would have to be a full replacement for the entire state, or a full replacement regionally. She said it is a doable option.
Ms. Whaley said that from July 2001 through June 2002, Humana experimented with SmartSuite on its 5,000 associates. Normal experience for that period indicated an expected increase in claims cost of about 19.2 percent; with SmartSuite the increase was held to 4.9 percent. This difference is attributed to behavior modification, based on the plans' structure to make people think more as a consumer. About 200 people waived coverage because there was no free plan; everyone had to contribute something. Humana strongly believes that the member should make a contribution in order to counteract the "it's free" mentality. A buydown of three or four percent was also built into the plan. SmartSuite includes six available options—not the usual HMO's, PPO's, and POS plans—and there are different levels of copays and contributions. She said it is a technology-driven product and that the pilot program for Humana employees was done online. She pointed out that there is a wealth of information on Humana's web site, which is also available to its state employee members.
Representative Feeley asked what the state can do to promote disease management programs, which do involve up-front costs. Ms. Whaley said that Humana actually has a return on investment dollars for all of its disease management programs. She said they know what the return is for the population in each program and said she would be glad to share that information. She said that about 15-20 percent of the population accounts for 80 percent of the health care dollars. Humana is trying to focus most of their clinical resources on the percentage of the population that is critically ill, and they are relying on information awareness/education via the web to educate the bulk of the population that really does not require a lot of guidance. Representative Feeley asked whether there would be potential savings if the state contract were for two years instead of one. Ms. Whaley said she believes there would be.
Representative Westrom asked whether Humana has done any experimenting relative to personal responsibility issues—for example, charging higher copays for smokers. Ms. Whaley said there is a lot of debate about that issue. She said this is not feasible under a fully-insured arrangement—there would be legal ramifications. On a self-insured basis, though, many employers are going that route in order to avoid legislative mandates and regulations, and some commercial clients are beginning to experiment with those ideas.
Representative Pullin asked about the amendment to the state contract. Ms. Whaley said that the amendment has allowed Humana to offer in four additional counties: Anderson, Edmonson, Owen, and Owsley.
Representative Lee said that Humana will be the only carrier in Hardin County, and he is concerned that there will be a shortage of primary care physicians who accept new patients. Ms. Whaley pointed out that only the PPO and EPO options will be offered in Hardin County and that referrals by a primary care physician are not required. She said that Humana is working internally to contract with additional physicians in Hardin County. However, if they are not successful, she believes people will be able to find their way through the system. She explained that some specialists also serve primary care needs but acknowledged that they would probably charge more. Senator Robinson thanked Ms. Whaley, and Representative Geveden assumed the chair.
Next on the agenda was an update on 2003 health insurance by Personnel Cabinet Secretary Carol Palmore; Carl Felix, Executive Director, Office of Public Employee Health Insurance; and Don Speer, Commissioner, Department for Administration, Finance and Administration Cabinet. They discussed amendments to the state group health insurance contract for 2003 (a document outlining contract changes was distributed to the Committee). Secretary Palmore explained that the RFP required a carrier to have at least 25 percent of the number of primary care physicians in its network as the bidder with the most primary care physicians, and, similarly, at least 40 percent of the number of specialists. The purpose of this requirement was to avoid having the premium rate set by a carrier with an insufficient network. As a result, carriers were disqualified in a number of counties because of an insufficient specialist network. Mr. Speer explained that the specialist network became an issue in 25 counties. The Finance and Administration Cabinet worked with the Personnel Cabinet to resolve the problem and determined that the 40-percent requirement should apply only in counties that had a specialist network of more than five. Seven counties were impacted as a result: Anderson, Edmonson, Green, Hart, Owen, Owsley, and Powell. Mr. Speer said a meeting was held yesterday with the three carriers that had initially bid in those counties and been affected by the specialist network requirement [Bluegrass Family Health, CHA Health, and Humana]. The carriers were given a second opportunity to offer there for 2003 and have agreed to do so. Open enrollment has been extended to October 18 in those counties. [Bluegrass Family Health was already offering HMO, POS and EPO options in Green and Hart Counties but will also be offering a PPO option as a result of the contract amendment.] Secretary Palmore added that the Kentucky Group Health Insurance Board will be making a recommendation regarding what should be the appropriate cutoff number for network physician requirements.
Representative Lee asked whether primary care physicians in Hardin County have been alerted that Humana will be the only carrier in that county and to expect an influx of new patients. Secretary Palmore said the Cabinet has not done that. She remarked that the RFP requires carriers to guarantee that their networks are sufficient to meet the needs of the people in the county. Representative Lee asked what will happen in the event that people have a problem finding a primary care physician who will take Humana. Secretary Palmore suggested that legislators possibly could contact physicians and urge them to contract with Humana. She said that the Cabinet can work with Humana. They are also recommending to employees in the Hardin County area that they contact their primary care physicians and, if necessary, encourage them to join the network. Representative Lee asked whether the contract requires carriers to find a provider for anyone who needs one. Mr. Speer said it does not go to that extent. Representative Lee pointed out that if the member cannot find a primary care doctor, the state will be spending more money for that person to obtain care from a specialist.
Representative Feeley said he wants to personally thank all of the insurance company representatives who attended today—particularly Aetna, which will not be participating in 2003. He pointed out that provider services in his area serve more than one county and said he believes the Commonwealth should explore the regional concept—for providers and for establishing premium rates—and should also consider changing to a two-year contract. Secretary Palmore said that last year consideration was given to a two-year contract, but because of the interest in self-insurance, the Cabinet felt an obligation to try to obtain bids on a self-insured program for the 2003 plan year. One scenario also asked for bids on regional ratings, based on the eight Medicaid regions. She maintained that the insurance companies do not really want to rate all counties within a region the same—rather, they want to be able to charge different rates in different counties.
Representative Geveden asked Mr. Hyser whether Aetna still insures state employee groups in other states. Mr. Hyser said that in Ohio Aetna has been doing business with a self-funded program for a quarter of a million retirees since 1974. They previously provided a fully-insured HMO for the active employee group but walked away from that business because they lost significant money. Representative Geveden thanked all of the presenters.
Representative Arnold reported that the Task Force on Elections, Constitutional Amendments, and Intergovernmental Affairs, which he co-chairs with Senator Kerr, had its first meeting September 17. They discussed the constitutional amendments that will be on the November ballot.
Without objection, Representative Belcher requested that the minutes of today's meeting be transmitted to the members of the full committee and the members of the Joint Subcommittee as soon as they are completed. Business concluded, and the meeting was adjourned at 3:35 p.m.