The third meeting of the Interim Joint Committee on State Government was held on Wednesday, September 26, 2007, at 1:00 PM, in Room 154 of the Capitol Annex. Senator Damon Thayer, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Damon Thayer, Co-Chair; Representative Mike Cherry, Co-Chair; Senators Walter Blevins, Jr., Julian Carroll, Carroll Gibson, Ernie Harris, and Elizabeth Tori; Representatives Eddie Ballard, Sheldon Baugh, Carolyn Belcher, Johnny Bell, Dwight Butler, Larry Clark, Leslie Combs, Danny Ford, Jim Glenn, Derrick Graham, J. R. Gray, Mike Harmon, Charlie Hoffman, Mary Lou Marzian, Lonnie Napier, Darryl Owens, Tanya Pullin, Tom Riner, Carl Rollins II, Dottie Sims, John Will Stacy, Kathy Stein, Tommy Thompson, John Tilley, John Vincent, Jim Wayne, Rob Wilkey, and Brent Yonts.
Guests: Brian Crall and Christine Wilcoxson, Personnel Cabinet; Mark Birdwhistell, Cabinet for Health and Family Services; Carla Whaley and Robin Kay, Humana Kentucky.
LRC Staff: Joyce Crofts, Alisha Miller, Karen Powell, Stewart Willis, Frank Willey, and Peggy Sciantarelli.
Senator Thayer welcomed Representative John Vincent, a new member recently appointed to the Committee. Representative Cherry gave an update regarding a member of the House, Representative Mike Denham, who recently had heart surgery and is recuperating at St. Joseph Hospital in Lexington.
The minutes of the July 25 meeting were approved without objection (motion by Representative Gray).
Representative Owens, Co-Chair of the Task Force on Elections, Constitutional Amendments, and Intergovernmental Affairs, gave the subcommittee report. He noted that the Task Force held a voting machine vendor fair at its September 25 meeting and that the next meeting would be October 23. The report was approved without objection.
Next on the agenda was a presentation and discussion regarding the 2008 Kentucky Employees Health Plan. Guest speakers were Brian Crall, Personnel Cabinet Secretary; Christine Wilcoxson, Commissioner of the Department for Employee Insurance, Personnel Cabinet; and Mark Birdwhistell, Secretary of the Cabinet for Health and Family Services. Humana Kentucky was represented by Carla Whaley, Vice President of Sales, and Robin Kay.
Secretary Crall and Ms. Wilcoxson presented a PowerPoint presentation that focused on plan highlights for 2008; premium rates for the four plans offered (Commonwealth Essential, Commonwealth Enhanced, Commonwealth Premier, and Commonwealth Select); open enrollment and benefit fairs; medical and pharmacy claims trends; plan cost dynamics; and the cross-reference premium benefit. Following are highlights of their presentation.
Secretary Crall said that in 2008 benefits will remain essentially unchanged for the tenth straight year. He said the move to self-insurance has been helpful providing both information to manage the plan and the ability to manage costs. He went on to say that he suspects it will be necessary in the upcoming year to make minor calibrations in order to keep premiums as low as possible and benefits as consistent as possible. Premiums for 2008 reflect a 5.8 percent increase; this increase and the previous year's increase of 5.93 percent are less than the national trend of 6.1 percent.
Secretary Crall explained that House Bill 380 (2006 budget bill) included language that eliminated the subsidy for dependents of retirees. He said this presented problems because, statutorily, the Commonwealth is supposed to provide the same basic coverage to everyone. It also presented problems for the retirement systems because they believe the Constitution requires that retirees receive the same health insurance benefits as active employees. To resolve the issue, an agreement was reached with the retirement systems to fund the subsidy through the reserve in the trust fund, which will cost the plan $12 million for the first six months. In the 2008 regular session the legislature will be asked to approve a "current period" appropriation for the subsidy and to fund the subsidy for the second half of 2008.
Ms. Wilcoxson said that open enrollment will be held October 15-26. She noted that enrollment is required only for those who change their current health insurance plan, add or drop a dependent, waive coverage and direct an employer contribution into a health reimbursement account (HRA), or participate in a flexible spending account. She said that benefit fairs will begin October 2 at 18 locations across the state and that the Frankfort benefit fair will also include a health fair.
Secretary Crall said that the 2006 claims trend rate was 11.56 percent, with a 7.53 percent rate for medical claims and a 25.39 percent rate for pharmacy claims. In 2007, the total claims trend rate was 9.63 percent. The pharmacy rate improved at 7.06 percent, and the medical rate was somewhat higher at 10.94 percent.
Ms. Wilcoxson said that the medical claims trend rate is being driven by an increase in hospital admissions and outpatient services. Drivers affecting pharmacy claims trends include increased ingredient cost; an increase in the average prescriptions per member—from 18 to 19.5 per year, which is higher than the national average; drug copays that are lower than the national average; and continuing increase in usage of the reduced copay benefit for prescriptions after 75 have been filled. She noted also that the fill rate for generic prescriptions increased from 49.5 percent in 2005 to 60.5 percent in 2007. Secretary Crall pointed out that the availability of generics for some of the most expensive drugs has contributed significantly to the improvement in the pharmacy claims trend. Ms. Wilcoxson said that the addition of more step therapies has also been a factor.
Ms. Wilcoxson explained that the Commonwealth Premier plan is being subsidized by the lower-cost plans (page 11 of the presentation). For 2006 and 2007, loss ratios, respectively, were 110 percent and 116 percent for Commonwealth Premier; 76 percent and 79 percent for Commonwealth Enhanced; and 47 percent and 46 percent for Commonwealth Essential. Secretary Crall said that this is representative of the type of information that is now accessible, which, historically, had been proprietary to the insurance companies. He went on to say that the subsidization of the Premier plan is not necessarily a problem in itself but that the Cabinet will continue to look at this to ensure that the premium and benefit differential between the plans is appropriate. He said that now that the data is available, this type of analysis will be possible, and the state will be in much better shape to make decisions about setting premiums and managing benefits.
The final page of the PowerPoint presentation dealt with the cross-reference premium benefit. Ms. Wilcoxson said this is a rich benefit that does not appear to be offered in most other states. She went on to say that prior to 2005, cross-reference employees paid 20 percent of the family premium; since 2005, cross-reference employees have paid no more than six percent of the family premium. This is something that possibly should be looked at in the future. Secretary Crall added that the cross-reference benefit, along with the subsidy provided in 2005, results in cross-reference employees paying very little of the premium for family coverage.
Representative Clark asked about discounting of 90-day prescriptions. Ms. Wilcoxson explained that the mail-order drug benefit provides a 90-day supply of maintenance drugs for a two-month copay or coinsurance. She said this benefit is also available through participating retail pharmacies.
To answer a question from Representative Ford, Secretary Crall confirmed that the cross-referencing mainly benefits those who elect family coverage but could also potentially be helpful to employees with other dependent coverage, depending on age, etc.
Representative Belcher said she has had questions from constituents regarding health insurance for retired teachers covered by Medicare. Ms. Wilcoxson pointed out that over-65 retirees are not included in the state employee plan. She told Representative Belcher she would be glad to give her the names of persons who can answer those questions.
Representative Belcher asked whether it is common for a plan member to have more than 75 prescriptions fills in one year and qualify for the reduced copay. Ms. Wilcoxson said that 13,105 families used this benefit in 2006 and that the number will probably be greater for 2007. She said that the Cabinet might want to look at increasing the threshold to 100 scripts.
Secretary Birdwhistell noted that the state employee health plan and the Medicaid program are employing the same concepts and the same best practices. He said the beauty of a self-funded plan is that the data is now available to show, for example, when someone triggers the 75-prescription benefit. He said this affirms that the decision to self-fund was the right decision.
Representative Cherry asked about HRAs (health reimbursement accounts) for active employees who waive coverage. He noted that the monthly employer contribution for those employees will remain at the $175 level in 2008. Secretary Crall said that the transition down to $175 last year was one of the issues he heard most about early on but that employees have come to realize the value of having the unused funds in the HRA roll over to the next plan year. Ms. Wilcoxson said that a little more than 29,000 employees are currently enrolled in an HRA; about 36,000 waived coverage, but not all of them are eligible for the HRA contribution.
Representative Cherry asked what percentage of employees are enrolled in the various plans. Ms. Wilcoxson said that enrollment between the Enhanced and Premier plans is approximately 50/50, with only a small number choosing the Select and Essential plans. (NOTE: Senator Thayer pointed out that the second page of the Humana handout provided by Ms. Whaley and Ms. Kay indicates the number enrolled in each plan. These figures were discussed later in the meeting.) Representative Cherry asked whether enrollment in the Select plan has been disappointing. Secretary Birdwhistell said that he was disappointed but hopes participation in that plan will increase as employees become more informed.
Representative Cherry asked what has enabled premiums to be kept relatively low for 2008, without a reduction in benefits, and whether this will lead to tough decisions later. Secretary Crall said that the answer to this question is a combination of things. He explained that the move to self-funding has been tremendously helpful. If premiums exceed claims, the surplus will be retained in the trust fund and in order to benefit the plan in future years. Also, having the necessary data gives the Commonwealth the ability to manage the plan much more intimately. He went on to say that there has been very aggressive management to try to keep the claims level down and to correctly structure premiums. Employees and their advocates resist when they do not feel there is sufficient justification for change; however, they are prepared to accept changes when they are justified. There has also been improvement in the health trend over the past couple of years. The administration is trying to manage the program not only for the short term but also for the long term.
Secretary Birdwhistell said that the health insurance program is moving toward a wellness model. He said that for the upcoming year they have been able to secure provider contracts that are more favorable, due to the availability of data as well as the combined leverage and purchasing power of the state Medicaid and health insurance programs.
Representative Rollins brought up the earlier statement that the lower-cost plans are subsidizing the Premier plan. He asked whether there are plans to "even that out." Secretary Crall said that the actuaries and the Group Health Insurance Board are discussing whether this is a problem that needs to be addressed in the premium or benefit structure. He said that premiums for 2008 were not adjusted for this but that more in-depth analysis of the issue has begun.
Representative Riner said it would be interesting to know whether the lower premiums for nonsmokers have led to a decrease in smoking. Ms. Wilcoxson said that they have not done a study relating to smoking but probably need to look at that more closely. She said that less than 500 employees have enrolled in the health plan's smoking cessation courses but that participation in the courses is being encouraged. Secretary Crall said that at present the disease management interventions are invitational only and that there is no mechanism in place to require participation. He said there are discussions at the Health Board level regarding what degree of intervention the plan should take in the future—whether there should be more aggressive interventions to promote wellness.
Senator Carroll asked whether 90-day prescriptions for maintenance drugs save money for everyone. Secretary Crall said the answer is yes, as a general rule. Ms. Wilcoxson pointed out that the health plan already provides for reduced copays for 90-day prescriptions that qualify under the mail-order benefit.
Senator Carroll asked about KASPER program (Kentucky All Schedule Prescription Electronic Reporting). [Note: KASPER is a web accessed database that tracks Schedule II-V controlled substance prescriptions dispensed within the state as reported by pharmacies and other dispensers.] He said he believes it is a great system if it is "on time"; however, there are delays, and it is not providing real-time access. He asked what can be done to address the timing problem. Secretary Birdwhistell said he would like to have KASPER operating in real time. He said that when the next RFP is released, it would need to include a contractual requirement for operating in real time. He said his vision for the future is to see KASPER much more integrated into the state Medicaid system, as well as interfacing with the state employee health plan and the Humana system. Senator Carroll questioned why medical facilities and practitioners are not mandated to use KASPER. Secretary Birdwhistell said he would need to investigate whether authority exists to require participation and that mandating use of the system might require legislative action.
Representative Thompson said it is remarkable that the Commonwealth has been able to keep premium increases so low for 2008. He asked whether the Cabinet could provide the Committee with a fact sheet showing co-pays and deductibles for the plan options. He said this information would be especially helpful to legislators who are not covered by the state employee health plan. Secretary Crall said they will send the information to committee staff, and Senator Thayer said that staff could send it out with the next meeting notice.
Representative Ford asked whether there would be any benefit to covering both Medicaid recipients and state employees under the same plan and whether there are any federal regulations to prohibit this. Secretary Birdwhistell said he is not sure there is a way to connect the two contractually but that he would be happy to look at whether it would be feasible. Representative Ford noted that this issue had been discussed at the recent Banking and Insurance Committee meeting. Secretary Crall pointed out that the Medicaid and state employee health plan populations combined would include about one million lives and would give added leverage to negotiations with providers.
Representative Wilkey asked Secretary Crall to comment further regarding the statement (page 2 of the PowerPoint presentation) that "pharmacy and medical benefits will soon require modest adjustments to ensure sustainability" and the comment earlier about the need for minor calibrations. Secretary Crall said that employees once paid 20 percent of the cross-reference premium for family coverage but now pay only six percent, adding that he is unsure whether this change was a specific conscious decision by the legislature. He pointed out that in 2003-2004 the average employer contribution was 70 percent; as of 2005 and forward, it is 86 percent. He said that generic drug substitution has almost reached its maximum; however, another step that could be taken to manage the costs with very little impact would be to not just do a drug-for-drug substitution but do a "class of drug" substitution. He said this would be an example of the type of modest adjustments that are being considered. He went on to say that there is some indication that the previous reduction of the generic copay from $10 to $5 may actually be driving pharmacy utilization and that perhaps the copay may need readjustment in order to properly balance utilization. He emphasized that the entire plan benefits when people who need drugs get them, but the plan should not include incentives that encourage unnecessary utilization. He added that if small or minor changes to the plan are put off –e.g., because of outside pressures—the plan will eventually be faced with major changes, similar to what occurred in 2004.
Representative Graham asked about the possibility of a future increase in the cross-referencing premium. Secretary Crall clarified that there has not been a policy change to increase the employee portion of the premium but that this is something the administration is "keeping an eye on."
Representative Graham asked whether there are plans to encourage more participation in the Select plan. Ms. Wilcoxson said that at all the benefit fairs Humana will give a presentation explaining the Select plan and who it can benefit. The Humana web site has helpful information. She said it is a good choice for healthier people but also can be a solid plan for those with chronic illnesses, and it has the advantage that unused funds in the HRA roll over to the next year. She added that, since open enrollment is passive, it is difficult to reach all members. Not all of them come to the benefit fairs, and they do not always read the written materials. Representative Graham said he hopes that development of a wellness center in Franklin County will be considered sometime in the future.. He said he thinks this would be good public policy and would address the health needs of state employees and people across the Commonwealth. Secretary Birdwhistell said he believes the timing is appropriate for that idea.
Representative Gray said he appreciates the fact that the administration has taken steps to see that the changes enacted in the 2004 special session work properly, save money for the state, and benefit state employees and teachers and everyone who depends on the health insurance program. Secretary Crall added that the 2005 transition to self-funding in two regions had been at the direction of the Governor, prior to going to statewide self-funding in 2006. Both he and Representative Gray agreed that the current success of the program was accomplished through the joint efforts of the legislature and the administration. Senator Thayer said he believes that the Governor, Secretary Crall, Secretary Birdwhistell and their staffs deserve a tremendous amount of credit for management of the program, which has kept cost increases much lower than the national average and benefits at the same level. He said this has required an executive branch that knows what it is doing on a day-to-day basis and a General Assembly willing to fund changes on behalf of employees and retirees.
Representative Butler asked whether there have been any problems in contracting with medical providers. He noted that one of his daughter's physicians does not participate in the state plan. Secretary Crall said that has been an issue occasionally within the Humana network but that, by and large, provider participation has been very good.
Secretary Crall introduced Humana representatives Carla Whaley, Vice President of Sales, and Robin Kay. Ms. Whaley and Ms. Kay gave a presentation on the requirements and administration of Humana spending accounts and use of the Humana Access debit card. They provided copies of their presentation to the Committee.
Ms. Whaley reviewed employee/retiree enrollment figures for the four Kentucky Employees Health Plan options: Commonwealth Premier, 78,462; Commonwealth Enhanced, 74,835; Commonwealth Essential, 1,345; and Commonwealth Select (with embedded HRA), 1,831. There are 27,281 employees that have a stand-alone HRA; 7,003 have a flexible spending medical account (FSA); and 920 have a flexible spending dependent account (FSD). Ms. Whaley then discussed advantages of the Humana Access debit card, which is used to access HRA/FSA funds at the point of service.
Ms. Kay discussed substantiation requirements relating to use of the Humana Access card. In summary, she said that the IRS restricts tax-protected HRA and healthcare FSA plans to funding only qualified health care expenses. Debit cards used in conjunction with these plans are subject to this restriction. Humana makes every attempt to auto-substantiate card swipes electronically. Card transactions are considered conditionally approved pending verification. Claims that cannot be auto-substantiated are communicated to the member in a series of three notification letters. If there is no response, the card is eventually suspended from further use. Transactions lacking documentation are considered nonqualified expenses and require corrective action.
Ms. Whaley discussed the number and type of Humana Access card transactions for 2007, which totalled 558,649 year to date. She pointed out an error in that pie chart in the relevant pie chart in the handout—the categories "medical fee 37.34%" and "medical equipment .29%" should be switched. She went on to say that 51.53 percent of card transactions were for prescription drugs. About two-thirds of the transactions for medical fee claims were from persons who have waived coverage. These transactions are responsible for the majority of complaints about substantiation because Humana does not have access to those members' coverage information. Concluding their presentation, Ms. Whaley and Ms. Kay explained enhancements that have been put in place to improve the debit card process.
Representative Graham said he has received complaints from constituents that it takes too long to receive refunds after a claim submission. Ms. Kay said she would need to know more information about the complaints, since the turnaround time for manual claims is normally three days.
Representative Graham said he does not have Humana insurance but has a flexible spending account. He spoke of difficulty that he has had in getting claims substantiated in a timely manner. He suggested that it might be easier and quicker in some instances for Humana to substantiate claims by contacting providers directly, particularly when the member shows a pattern of repeated claims with a certain provider. Ms. Kay said that Humana's customer care representatives are happy to assist members in contacting providers to resolve problems. She noted that Humana would need permission for a physician or provider to share their information if the member is not covered by the Humana plan. She said that the turnaround time for reviewing substantiating documentation is usually three days. The vast majority of situations are resolved quickly, although delays do happen on occasion. Ms. Wilcoxson reminded everyone that the Department of Employee Insurance also has a member services phone line, and she urged committee members to contact the Department any time they or their constituents need assistance.
Representative Harmon asked whether it is foreseen that in the future only one health insurance card might be needed, rather than requiring a separate card for spending accounts. He said this might contribute to ease of use and maybe an increased interest in the Select plan with the embedded HRA. Ms. Wilcoxson said she does not know of any plans at this time to change the current procedure.
Senator Thayer thanked the guest speakers. Business concluded, and the meeting was adjourned at 3:00 p.m.