Interim Joint Committee on State Government


Minutes of the<MeetNo1> 3rd Meeting

of the 2009 Interim


<MeetMDY1> September 23, 2009


The<MeetNo2> third meeting of the Interim Joint Committee on State Government was held on<Day> Wednesday,<MeetMDY2> September 23, 2009, at<MeetTime> 1:00 PM, in<Room> Room 154 of the Capitol Annex. Representative Mike Cherry, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Damon Thayer, Co-Chair; Representative Mike Cherry, Co-Chair; Senators Walter Blevins, Jr., Julian Carroll, Carroll Gibson, Ernie Harris, Dan Kelly, Alice Forgy Kerr, Mike Reynolds, Elizabeth Tori, Robin Webb, and Ed Worley; Representatives Eddie Ballard, Kevin Bratcher, Dwight Butler, John "Bam" Carney, James Comer, Jr., Tim Couch, Will Coursey, Danny Ford, Jim Glenn, Derrick Graham, Mike Harmon, Melvin Henley, Charlie Hoffman, Jimmie Lee, Mary Lou Marzian, Brad Montell, Lonnie Napier, Sannie Overly, Tanya Pullin, Tom Riner, Carl Rollins II, Steven Rudy, Sal Santoro, Kent Stevens, John Tilley, Jim Wayne, Alecia Webb-Edgington, Ron Weston, and Brent Yonts.


Guests:  Charles Geveden, Justice and Public Safety Cabinet; Dr. Michael McCall, Kentucky Community and Technical College System; Tim Longmeyer, Fred Nelson, Stephanie Marshall, and Joe Cowles – Personnel Cabinet; Bill Thielen and Charlene Haydon, Kentucky Retirement Systems.


LRC Staff:  Kevin Devlin, Brad Gross, Alisha Miller, Karen Powell, Greg Woosley, Bill VanArsdall, and Peggy Sciantarelli.


The minutes of the August 26 meeting were approved without objection, upon motion by Senator Thayer.


First on the agenda was discussion of the proposed transfer of certain employees from the Kentucky Community and Technical College System (KCTCS) to the Kentucky Department of Corrections (DOC), Justice Cabinet. The transfer would involve employees responsible for educational instruction at Kentucky correctional institutions. Guest speakers were Charles Geveden, Deputy Secretary of the Cabinet, and Dr. Michael McCall, President of KCTCS.


Representative Cherry explained that legislation to accomplish the proposed transfer was considered in the 2009 regular and extraordinary sessions but was put “on hold” for further study in order to ensure that there would be no negative impact on the benefits and rights of the affected employees. He said that the issue is being discussed today in order to address questions that have arisen about the proposed transfer.


Mr. Geveden said that for years DOC was responsible for education of prisoners. In 2006, however, the education funding was transferred from DOC to KCTCS. He explained that he and Dr. McCall both believe that the mission of educating prisoners should be a function of DOC rather than KCTCS, although KCTCS would likely still be utilized for college level courses. He said the Cabinet intends to see that the 69 employees who would be transferred would not be disadvantaged in any way. All personnel would be retained at their current salary, and they would become merit employees under KRS Chapter 18A. They would keep the same retirement benefits, as far as possible, and would be permitted to transfer leave balances. The transfer would require legislative action. Employees who work inside the prisons would be eligible for the “hazardous duty” designation, which would enhance their retirement benefits.


Mr. Geveden said that DOC plans to partner with a program called Kentucky Adult Education to provide GED (General Educational Development) courses. He said the program is 40 percent federally-funded and serves all Kentucky counties. Attainment of G.E.D. will be the primary focus, since most prisoners have less than a high school education. Concluding his remarks, he said that legislation to accomplish the transfer will be proposed in the 2010 regular session.


Dr. McCall said that KCTCS supports the efforts of the Justice Cabinet. He said that KCTCS and the Cabinet have worked together closely over the years. Both now agree that the transfer of the education responsibility to DOC is a good move, and KCTCS will support the legislation in 2010. KCTCS will continue to offer whatever assistance is needed at the college level. Dr. McCall stressed that protecting the rights and benefits of the affected employees is a major concern.


Senator Carroll asked what it costs to house a prisoner annually. Mr. Geveden said the cost is approximately $19,000 per inmate. Senator Carroll said that about 70 percent of inmates do not have a high school diploma. He also contended that the $19,000 cost per inmate is actually much higher when considering what it costs the state to support family members of inmates. He commended the prisoner education programs but said he believes the General Assembly has been remiss over the years by not addressing the high school dropout problem more aggressively.


Senator Gibson asked whether the employees who would go into hazardous duty positions would be eligible to retire with full retirement benefits after 20 years’ service, even though most of those years may have been in a nonhazardous position. Representative Cherry called on Bill Thielen, Chief Operating Officer of Kentucky Retirement Systems, and Charlene Haydon, Chief Benefits Officer, who were present in the audience. Ms. Haydon said that the nonhazardous and hazardous service credit of the employee would be combined in order to determine retirement eligibility but that there would be a reduction in benefits based on the nonhazardous service. She stated that the employee would be eligible to retire with full benefits after 20 years.


Senator Webb asked where the 69 employees are currently located. Dr. McCall said that, for administrative purposes, they are located at the Bluegrass, Jefferson and Maysville Community and Technical Colleges. Mr. Geveden explained that the employees who teach at the correctional institutions live in nearby areas and do not have to travel from the community college campuses. Senator Webb asked about the fiscal impact of placing the employees in hazardous duty positions. Mr. Geveden said he does not know that yet because it has not been determined how many will be in hazardous positions. He said that information on the cost will be available, however, by the time the legislation is introduced in 2010.


Senator Blevins asked how many of the 69 were in hazardous positions before becoming an employee of KCTCS. Dr. McCall said he did not know but could try to find that out. Senator Blevins asked whether the employees going into hazardous positions would be subject to the provisions of House Bill 1 (2008 Extraordinary Session). Mr. Thielen said that the transferred employees’ participation date would be recognized back to the time they began participating in the Kentucky Teachers Retirement System (KTRS) or the Kentucky Employees Retirement System (KERS). They would not be treated as new employees under House Bill 1 and therefore would be eligible to retire with full benefits after 20 years of service. He said, however, that unless the legislation specifies otherwise, the nine 403(b) employees would be considered new employees under the House Bill 1 benefit structure. [NOTE: A 403(b) plan is a defined-contribution retirement plan.] Mr. Geveden noted that those nine employees are not members of either KTRS or KERS. Representative Cherry explained that KCTCS employees—unlike employees in KTRS and KERS—have the option of choosing a 403(b) plan. He said he envisions that the legislation will take care of those nine employees to ensure that they will not be treated as new employees for retirement purposes.


Senator Tori said it would be helpful to the Committee to have additional information, such as duty assignments of the employees and how the transfers would impact the retirement systems and the state budget. Dr. McCall said that KCTCS will be glad to provide any information that is needed. Representative Cherry said that those issues will be fully discussed when the legislation is considered in 2010. He also explained that those KCTCS employees who have been working inside the prisons were not previously classified as hazardous because there are no hazardous positions within the KCTCS system.


Representative Carney said it is his understanding that the local school instructors who supply educational services for the Juvenile Justice facility in his district will not be impacted by the proposed transfer. Mr. Geveden said that is correct. There were no additional questions, and Representative Cherry thanked the speakers.


Next on the agenda was a briefing by the Personnel Cabinet regarding the 2010 Kentucky Employees Health Plan (KEHP). The Cabinet was represented by Tim Longmeyer, Deputy Secretary; Fred Nelson, Commissioner, Department of Employee Insurance; Stephanie Marshall, State Wellness Director; and Joe Cowles, General Counsel.


Mr. Longmeyer gave a recap of 2009 open enrollment. He spoke of the Cabinet’s efforts to encourage greater participation in the consumer-driven plan, Maximum Choice, which currently has about 25 percent participation. He said that in 2009 the Cabinet improved communication to members through the collection of 128,000 e-mail addresses. There was a significant increase in wellness participation. Also, in 2009 the first “active” online open enrollment was conducted since the time when KEHP became self-insured, and more than 285,000—including waivers—enrolled.


Mr. Longmeyer discussed KEHP challenges and principles. He said that high health plan inflation is a continuing challenge. Other challenges include improving member tools and education, increasing participation in wellness and disease management programs, and increasing movement into consumer-driven plans. KEHP’s guiding principles are: provide uniform coverage across the Commonwealth; encourage wellness and healthy lifestyles and improve chronic disease care; provide better preventive care at little or no cost; educate members about plans that are more appropriate for their health needs; provide plan alternatives that are accessible for retirees; provide both quality and lower cost PPO options; provide plans with unlimited lifetime maximums; and improve the subsidy for family and dependent coverage.


Mr. Nelson discussed highlights of the 2010 plan year. He said that, in contrast to 2009, there will not be any major changes in 2010, but there will be several benefit enhancements and other minor changes. He said that during next month’s open enrollment a new planning tool—the KEHP Benefits Analyzer—will be introduced. Not a generic benefit calculator, this tool will access the member’s personal medical and pharmacy claims for the prior 18 months and use that information, coupled with the employee’s premium and out-of-pocket costs, to illustrate how the member would fare under each of the four benefit plans. The Analyzer tool can also be used for flexible spending account and health reimbursement account calculations. Mr. Nelson explained that a 2008 analysis found that 40 percent of KEHP members had total yearly medical and pharmacy costs of $1,000 or less; yet they chose Optimum PPO, the most expensive plan. If they had had a better understanding of the plan choices, those members probably would have enrolled in Maximum Choice—the consumer-driven plan which includes a $1,000 health reimbursement account for single coverage—and every penny of their costs would have been covered. Later in the meeting he stated that 28 percent of members had medical and pharmacy expenses totaling $500 or less.


Mr. Nelson said that the discounts offered by the Virgin HealthMiles program were originally scheduled to end September 30, 2009; however, the discounts will be extended through the end of October. Members who sign up for Virgin HealthMiles during open enrollment will receive the discounts for the following 12 months. In 2010 a new Wellness Hotline will also be available.


Mr. Nelson said that there will be some benefit enhancements in 2010 and also some modest benefit reductions. The enhancements include improved coverage for preventive colonoscopy. Also, the value of the up-front benefit allowance in the Capitol Choice hybrid plan will be improved so that the after-copay balance of the cost for doctor’s office visits will not be deducted from the member’s benefit allowance. In the Standard PPO plan, the in-network deductible for single coverage will be reduced from $750 to $500, and the monthly employee premiums for couples and families will also be reduced.


Mr. Nelson said that the benefit reductions include an increase in the emergency room copay from $50 to $75 in the Optimum PPO plan, a change that is intended to discourage unnecessary emergency room visits. In the Capitol Choice and Optimum PPO plans the copay for specialist physician visits will cost $5 more than the copay for primary care physician visits. Also, in the Optimum PPO plan the single in-network deductible will be raised from $250 to $300, and the in-network couple/family deductible will increase from $500 to $600.


Mr. Nelson discussed premium rates. He said that currently three of the four plans have a zero dollar contribution for single coverage. In 2010, the zero contribution will apply to only two of the four plans—Standard PPO and Maximum Choice. In the Optimum PPO plan employees currently pay $25 per month for single coverage; in 2010, that will increase to $27.50. In the Capitol Choice plan, the current zero contribution for single coverage will become $5 in 2010.


Mr. Nelson said that the rate increase for most dependent coverages has been held to the 5-6 percent level each year since the plan became self-insured in January 2006. The increase will be kept at that level also for 2010. In the Standard PPO plan, however, the premiums for dependent coverage will be significantly reduced in an effort to attract employees to that plan. He explained that this was possible because the premiums that have been paid for that plan have been more than adequate to cover claims thus far.


Mr. Nelson said that the non-smoker incentive—i.e., the premium surcharge paid by smokers—is currently $21 per month for single coverage and $42 for dependent coverage. In 2010, employees who smoke will have to pay an additional $24 for single coverage and an additional $48 for dependent coverage. He said that KEHP has also adopted a new policy to allow employees to convert to non-smoking status during a plan year if they first complete a smoking cessation program.


Mr. Nelson said that open enrollment for 2010 will again be mandatory and will be conducted October 12-25. He said that the Cabinet was successful in getting virtually everyone enrolled during 2009’s mandatory open enrollment because there was a concerted effort to locate people who failed to enroll. The Cabinet will work toward the same goal for 2010. There will be 18 benefits fairs statewide from October 1-15, and insurance coordinator training is underway.


Mr. Nelson concluded his report by stating that shortly after open enrollment a dependent eligibility audit will be conducted that will require documented proof of a dependent’s eligibility. He said that, based on the experience of other states and municipalities, the Cabinet anticipates that the audit could result in significant cost savings. The state of Georgia—with a much larger enrollment than KEHP—was able to save about $30 million after auditing dependent eligibility.


Ms. Marshall gave a brief update on the state wellness program. She said that currently 1,600 state employees are enrolled in the weight-wise challenge. During the upcoming months the wellness program will focus on prevention, cancer awareness, the Great American Smokeout, and stress management. As 2009 draws to an end, the data will be examined to determine the impact of the wellness program on both health care costs and the productivity and engagement of employees.


Representative Wayne commended the efforts of KEHP staff. He asked why the federal Mental Health Parity Act, which takes effect January 1, 2010, for most health plans, was not mentioned as a benefit enhancement. Mr. Nelson stated that in accordance with state law KEHP already covers mental health and substance abuse treatment and that he believes it mirrors what is being proposed at the federal level.


Senator Thayer complimented the Cabinet for its user-friendly online enrollment process. He said he has not received any complaints about it from his constituents, many of whom are state employees. He also thanked the speakers for their presentation and expressed appreciation for the Cabinet’s good work on behalf of state employees.


Representative Harmon asked about the strength of the health insurance trust fund. Mr. Longmeyer said that according to the latest actuarial reports, the fund will “finish this year in the black.” He explained that although $50 million from the health trust had been used to help balance the budget, the Cabinet would only have been able to use a small percentage of those funds—about 25 percent—to cover cost overages from a previous plan year. He said that each plan year is designed to stand on its own, and use of health trust fund dollars beyond the provisions in HB 321 (enacted in 2008) would require legislative authorization.


Representative Ford asked whether there has been any comparison of premium rates with private industry. Mr. Longmeyer said yes and that the rates for dependent coverage are in the medium range—about 43-45 percent—when compared with plans of like size. Rates for single coverage are very competitive and would probably rank in the top 10 percentile. He said the Cabinet has strived to minimize premium increases for dependent coverage and to continue offering some zero dollar plans. Mr. Nelson agreed. He stated that KEHP is by far the largest self-funded plan in the state. Its single coverage rates and benefit plans are comparable to large Kentucky companies such as Toyota and Lexmark but that those companies tend to subsidize dependent coverage at a higher level. Representative Ford said it is his understanding that insurance costs are generally higher for large groups than for small groups. He asked whether this holds true for KEHP. Mr. Longmeyer stated that KEHP’s costs are probably higher, not only due to the size of the member pool but also its broad range. He pointed out that the KEHP group also includes pre-65 retirees.


Representative Cherry thanked the speakers for a good presentation. The final item on the agenda was a subcommittee report from Senator Thayer regarding the September 22 meeting of the Task Force on Elections, Constitutional Amendments and Intergovernmental Affairs. The report was adopted without objection, upon motion by Senator Thayer.


Representative Cherry briefed the Committee regarding the October 7 meeting to be held in Princeton, Kentucky. Business concluded, and the meeting was adjourned at 2:30 p.m.